State Bank of Pakistan Monetary Policy Statement December 2025
The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) held its meeting on December 15, 2025. After reviewing the economic situation of the country, the Committee decided to reduce the policy interest rate by 50 basis points, starting from December 16, 2025.
This decision was taken to support economic growth while also making sure that inflation stays under control. Below is a simple and complete explanation of this Monetary Policy Statement in easy English.
What Is the Policy Rate Decision?
The MPC decided to cut the policy rate by 0.50 percent. This means borrowing money may become slightly cheaper for businesses and consumers. The Committee believed there was enough space to reduce the rate without creating inflation problems.
The main aim of this step is to:
- Support sustainable economic growth
- Keep inflation stable
- Maintain price stability in the country
Inflation Situation in Pakistan
Inflation remained within the target range of 5 to 7 percent during July to November FY26. This shows that prices are generally under control.
However:
- Core inflation (which does not include food and energy prices) is still somewhat high
- Overall inflation outlook is unchanged
The Committee believes inflation is stable because:
- Global commodity prices are relatively low
- People’s inflation expectations are anchored
- Monetary policy remains prudent and careful
Economic Activity and Growth
The MPC noted that economic activity is improving in Pakistan. Several indicators show positive movement in the economy.
Some key signs include:
- Strong improvement in large-scale manufacturing
- Better performance in high-frequency indicators
- Higher-than-expected industrial growth in Q1 FY26
Because of this progress, the Committee believes the economy is gaining strength. However, it also warned that global economic conditions remain difficult, especially for exports.
Global Economic Challenges
While domestic conditions are improving, the global environment is still challenging.
Main global concerns include:
- Weak demand for exports
- Changing global trade policies
- Tariff-related issues
- Tight financial conditions worldwide
These global issues could affect Pakistan’s economy, especially exports, but overall conditions remain manageable for now.
Key Developments Since the Last MPC Meeting
The Committee highlighted several important developments that happened after the last meeting.
1. Employment and Unemployment
- The Labor Force Survey 2024–25 showed that unemployment increased compared to 2020–21
- However, employment growth was faster than before
- This means more jobs were created, but population growth also affected unemployment numbers
2. Foreign Exchange Reserves
- Despite large debt repayments, SBP’s foreign exchange reserves increased
- Reserves crossed $15.8 billion
- Pakistan received $1.2 billion from the IMF after completing EFF and RSF reviews successfully
This improved Pakistan’s external position and financial confidence.
3. Consumer and Business Confidence
- According to SBP-IBA surveys:
- Consumer confidence improved
- Business confidence remained positive, though slightly lower than before
This shows people feel more hopeful about the economy.
4. Fiscal Performance
- Due to a large profit transfer from SBP, both:
- Overall fiscal balance
- Primary balance
- Recorded surpluses in Q1 FY26
This is a positive sign for government finances.
5. Global Conditions
- Commodity prices remain supportive
- But global trade and financial conditions are still changing and uncertain
Real Policy Rate and Long-Term Stability
The Committee assessed that the real policy rate remains positive. This means interest rates are still high enough to control inflation.
According to the MPC:
- Inflation is expected to stay within 5–7 percent in the medium term
- The current policy supports long-term economic stability
The Committee stressed the need for:
- Coordinated monetary and fiscal policies
- Structural reforms to strengthen the economy
- Policies that support higher and sustainable growth
Real Sector Performance
Industrial Sector
Industrial activity remains strong.
Key highlights:
- Large Scale Manufacturing (LSM) grew 4.1 percent year-on-year in Q1 FY26
- Most industrial sectors showed growth
- Sales of:
- Automobiles
- Fertilizer
- Cement
- Also increased
Imports of machinery and intermediate goods also rose, showing better industrial outlook.
However, export challenges could still affect industrial growth.
Agriculture Sector
The agriculture sector also shows positive signs.
Key points:
- Wheat crop area has increased
- Input conditions are supportive
- Government incentive schemes are helping farmers
Because of this:
- Wheat production may exceed the target
This is good for food security and rural income.
Services Sector
Positive performance in:
- Industry
- Agriculture
Is expected to support growth in the services sector as well.
GDP Growth Outlook for FY26
Based on current trends, the MPC expects:
- Real GDP growth to stay in the upper half
- Of the projected range of 3.25 to 4.25 percent for FY26
This reflects improving economic momentum.
External Sector Overview
The current account deficit during July to October FY26 was $0.7 billion, which was in line with expectations.
Key points:
- Imports increased due to better economic activity
- External balance remains manageable
- Foreign inflows and reserves provide support
Conclusion
The December 2025 Monetary Policy Statement shows that Pakistan’s economy is moving in a positive direction.
Main takeaways:
- Policy rate reduced by 50 bps
- Inflation remains within target
- Economic activity is improving
- Foreign reserves are strengthening
- Fiscal performance is better
- Growth outlook remains positive
The State Bank of Pakistan aims to balance price stability with economic growth, while continuing reforms and careful policies to ensure long-term stability.
