S&P expects cautious monetary policy amid improving economic outlook

S&P Global Market Intelligence expects Pakistan's monetary policy to remain cautious despite an improving macroeconomic environment, citing persistent inflationary pressures and external risks.

 

The assessment follows the State Bank of Pakistan's decision to keep the policy rate unchanged at 11.5% in its July 2026 monetary policy meeting. S&P said the stable policy stance reflects easing external pressures, improving economic activity, and stronger business sentiment, but noted that inflation remains above the central bank's target range.

 

The firm highlighted renewed geopolitical tensions in the Middle East, volatile commodity prices, and the risk of a severe El Niño event as key factors that could weigh on the economic outlook. It added that although Pakistan's external buffers are improving, repayment obligations and reliance on official financing and debt rollovers mean policy discipline remains essential.

 

S&P forecasts Pakistan's real GDP to grow 3.5% in FY2027, supported by stronger economic fundamentals. It also projects foreign exchange reserves to reach USD 19.5 billion by the end of December 2026, while forecasting the current account deficit at 0.7% of GDP in 2026 and 0.9% of GDP in 2027, backed by robust remittance inflows and planned external financing.