Pakistan surprises by holding key rate steady to stabilise inflation

Pakistan's central bank left its key interest rate unchanged at 11% on Wednesday, saying the outlook for inflation had deteriorated due to energy prices, surprising analysts who had expected another cut.

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The Monetary Policy Committee of the State Bank of Pakistan said in a statement that energy prices, particularly for gas, had risen more than expected.

The panel also noted that the trade deficit was expected to widen further in the fiscal year ending June 2026, amid a pickup in economic activity and a slowdown in global trade.

"The inflation outlook has somewhat worsened," it said. "Given this macroeconomic outlook and the emerging risks, the MPC considered today's decision as necessary to ensure price stability."

In a Reuters poll this week, all 15 analysts said they expected the SBP to ease, with nine forecasting a 50 basis-point cut, four predicting a deeper 100 basis-point reduction and two projecting a smaller 25 basis-point cut.

"You have to be cautious," State Bank Governor Jameel Ahmad, told a news conference in Karachi, after announcing the policy rate, saying it is better to wait than to take action and then have to reverse it.

Pakistan is pushing through a series of economic reforms under a $7 billion International Monetary Fund programme, including a contractionary government budget passed in June that slashes spending to curb its fiscal deficit.