Karachi: Pakistan’s economy is navigating through the uncertain global environment with macroeconomic stability remaining intact and economic momentum of the past three years continuing. the State Bank of Pakistan stated in its bi-annual Monetary Policy Report (MPR) on Monday.
The report reviews the macroeconomic developments and outlook that underpinned the MPC’s decisions since the January 2026 MPC meeting and assessed that the overall policy stance remained prudent. amidst consistent efforts to shore up fiscal and external buffers. which helped the country withstand the ongoing shock better than earlier projections as well as previous global energy price shocks.
The SBP. according to a statement issued here. released the MPR in line with its commitment to bring more transparency to monetary policy decision-making and the Monetary Policy Committee’s (MPC) reaction function.
The report observed the significant impacts of the evolving geopolitical developments on the macroeconomic conditions and outlook during the review period. noting that outbreak of the Middle East conflict in late February led to a sharp increase in global energy prices and freight and insurance costs. and supply chain disruptions.
‘Despite this significant shock. the macroeconomic outcomes in FY26 turned out broadly in line with the projection ranges announced after the January 2026 MPC meeting. ‘ it added. highlighting that the SBP’s prudent monetary policy tightening is helped contain second-round effects of the energy price shock. while keeping inflation expectations of stakeholders anchored.
The report acknowledged measures taken by the government to ensure fiscal discipline including timely passing of global price hike to domestic prices and introducing targeted subsidies and austerity measures to conserve energy. These measures helped moderate aggregate demand and ensured that demand-side pressures stayed muted. MPR assessed.
The Governor SBP. Jameel Ahmad. in his message regarding issuance of the MPR highlighted the main features of the report and noted that inflation was assessed to ease and stabilize near the upper bound of the target range towards end-FY27 while economic growth was expected to pick up and remain in the range of 3. 5 to 4. 5 percent.
He said that the current account deficit was projected to remain within 0 – 1% of GDP. that will support continued FX purchases by the SBP and help achieve the FX reserves target of $20. 20 billion by December 2026 while SBP’s FX reserves are projected to rise further by end-FY27.
The MPR also discusses multiple risks to the macroeconomic outlook which include the evolving geopolitical developments in the Middle East. which could push up global energy and other commodity prices beyond the assumed levels and therefore impact the macroeconomic outlook.
The Report also highlighted climate-related risks. specifically the evolving El Ni±o conditions and floods. which could adversely affect the economy. The report also cautioned that delays in implementation of structural reforms could further weaken exports. slow productivity gains. and reduce the economy’s capacity to sustain higher growth without generating inflationary and external account pressures.
Discussing key concepts related to inflation and monetary policy in six box items. the MPR reviewed in detail the monetary policy transmission mechanism; the central banks’ reaction function when faced with supply-side driven inflation; the use of different measures of inflation globally and within the SBP; the growing size of open market operations (OMOs) and its implications for monetary policy; and the use of various sentiment surveys to gauge stakeholders’ expectations about different aspects of the economy.