The State Bank of Pakistan (SBP) surprised markets by keeping its key policy interest rate unchanged at 10.50 percent in its first Monetary Policy Committee (MPC) meeting of 2026. The decision, announced on January 26, 2026, came despite widespread expectations that the central bank would cut rates to stimulate economic activity and lower borrowing costs.
The MPC, chaired by SBP Governor Jameel Ahmad, reviewed recent economic data before maintaining the rate, noting that headline inflation stood at 5.6 percent year-on-year in December 2025, comfortably within the SBP’s target range of 5 to 7 percent. However, the committee also highlighted that core inflation remained elevated at around 7.4 percent, suggesting persistent price pressures in non-food sectors.
Governor Ahmad said the MPC expected inflation and external accounts to remain broadly stable. He added that economic activity continues to gain pace, supported by stronger performance in large-scale manufacturing and domestic-oriented sectors. The SBP also pointed to resilient remittances and softer global commodity prices as factors that helped cushion economic pressures and keep the current account deficit relatively contained.
Market analysts had widely anticipated a rate cut heading into the meeting. A recent survey by financial research firms showed that a significant portion of economists and traders expected the MPC to reduce the rate by between 25 and 100 basis points to further support growth and investment. Many believed that a rate reduction would reduce the cost of borrowing for businesses and consumers, providing momentum to sectors such as housing, manufacturing, and agriculture.
Instead, the SBP decided to hold steady. Analysts said the unchanged policy rate reflected the MPC’s cautious outlook, focused on consolidating recent economic gains while guarding against upside inflation risk. Some observers pointed to the improvement in GDP growth projections — which analysts see trending toward the upper half of the government’s estimated 3.25–4.25 percent range for the fiscal year — as underpinning confidence in a stable monetary stance.
The Monetary Policy Committee has decided to keep the policy rate unchanged at 10.5 percent in its meeting held on January 26, 2026.
For details: https://t.co/IyaTFO6mbh#SBPMonetaryPolicy pic.twitter.com/bWLBgkRliZ— SBP (@StateBank_Pak) January 26, 2026
The SBP’s rate decision follows a surprise reduction of 50 basis points to 10.50 percent in December 2025, which marked the first cut after a long period of steady interest rates. Since mid-2024, the SBP has eased monetary policy significantly, trimming its policy rate from a peak of 22 percent as inflation pressures eased and macroeconomic stability improved.
While the unchanged rate was a disappointment to some business groups and borrowers, many economists believe the decision strikes a balance between supporting growth and maintaining price stability. The SBP will review conditions again at its next MPC meeting, scheduled for March 9, 2026.
