The State Bank of Pakistan (SBP) has decided to maintain the policy rate at 12%, citing lower-than-expected inflation in February 2025 but warning of potential risks from rising food and energy prices.

The decision was announced after the Monetary Policy Committee (MPC) meeting held on Monday.

In a statement, the MPC highlighted that inflation had eased due to a decline in food and energy costs.

However, it noted that core inflation remained high and persistent, raising concerns that any surge in global commodity prices could reverse the downward trend.

The SBP also pointed to growing economic activity, as reflected in high-frequency indicators such as automobile sales, petroleum consumption, and cement dispatches.

However, concerns emerged over the external sector, with the current account slipping into a deficit of $0.4 billion in January 2025 after months of surplus. Rising imports and weak financial inflows have put pressure on foreign exchange reserves, which are expected to stabilize above $13 billion by June 2025.

On the fiscal side, the central bank noted a shortfall in tax revenues, making it challenging to meet the government’s primary balance targets. However, non-tax revenues and controlled expenditures have helped maintain overall fiscal stability.

The SBP reiterated that its monetary policy stance aims to keep inflation within the 5-7% target range while supporting economic recovery. GDP growth for FY25 is projected between 2.5% and 3.5%, with expectations of improved performance in the second half of the fiscal year.

Despite some positive economic indicators, the MPC cautioned that global uncertainties, tariff escalations, and financial inflows could impact Pakistan’s economic outlook. The committee reaffirmed the need for structural reforms and fiscal discipline to ensure long-term stability.