By Ariba Shahid and Saad Sayeed
KARACHI, Pakistan, Jan 26 (Reuters) – Pakistan’s central bank held its key policy rate unchanged at 10.50% on Monday, defying market expectations for further easing as policymakers cited the need to ensure price stability and support sustainable economic growth.
The move, announced by central bank chief Jameel Ahmad at a press conference, ran counter to market expectations. A Reuters poll conducted ahead of the meeting had anticipated a 50-basis-point cut, citing easing inflation, stronger foreign exchange reserves and a stabilising rupee.
It follows a surprise 50-basis-point cut in December that ended a four-meeting pause, and comes after cumulative easing of 1,150 basis points since mid-2024. Interest rates had previously peaked at a record 22% in 2023.
“The Committee deemed it prudent to hold the policy rate unchanged at the current level to ensure price stability and support sustainable economic growth,” the central bank said in its monetary policy statement.
Policymakers said economic activity was gaining momentum faster than anticipated, driven largely by domestic-oriented sectors, while the trade deficit had widened due to rising imports and weaker exports.
INDICATORS
The central bank chief said the monetary policy committee assessed the real policy rate to be adequately positive to stabilise inflation within its medium-term target range of 5–7%.
It added that inflation could temporarily exceed the upper bound of that range for a few months during the current calendar year, peaking in June.
Pakistan’s consumer price inflation slowed to 5.6% year-on-year in December, while prices fell on a monthly basis due to lower perishable food costs, official data showed. Non-food inflation, however, remained elevated in both urban and rural areas.
The central bank provisionally reported real GDP growth of 3.7% year-on-year in the first quarter of FY26 and upgraded its full-year growth forecast to a range of 3.75–4.75%, Ahmad said, citing strong large-scale manufacturing output and improving business and consumer confidence.
Muhammad Ali, an investment analyst at AKD and the only respondent in the poll who expected rates to be held, said the central bank was likely to remain on pause to assess inflation trends. “We expect the central bank to hold the policy rate at 10.5% for the rest of the ongoing fiscal year,” he said.
RESERVES AND CREDIT
The central bank said foreign exchange reserves are expected to exceed $18 billion by June, supported by strong workers’ remittances and ongoing dollar purchases in the interbank market. Ahmad said reserves were on track to surpass $20 billion by the end of 2026, which would mark a record high.
Separately, the central bank said it would cut the average cash reserve requirement for banks to 5% from 6% to encourage private sector credit.
An International Monetary Fund staff report has cautioned against premature monetary easing under Pakistan’s $7 billion loan programme, urging policymakers to remain data-dependent to anchor inflation expectations and rebuild external buffers.
(Reporting by Ariba Shahid and Saad Sayeed in Karachi, Asif Shahzad in Islamabad; Editing by Alexandra Hudson and Ros Russell)
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