The decision and the trade-offs
Pakistan's central bank kept the target rate pinned at 11.5% for the third consecutive meeting, aiming to support a fragile recovery after the country nearly defaulted in 2023. The hold was in line with most forecasts from Bloomberg's analyst survey. Policymakers are trying to keep growth alive without letting prices run hotter, a tougher task with the Middle East conflict threatening to push up import bills and stress the country's external position.
Inflation and external pressures
Prices accelerated more than anticipated in August, with CPI at 11.15% as food and energy led the gains. Earlier this year, the run-up in oil prices put pressure on reserves, underscoring how exposed Pakistan remains to energy shocks. If the US-Iran conflict escalates, the squeeze would likely intensify, since a significant portion of Pakistan's energy supplies moves through the Strait of Hormuz.
Reserves, bonds, and ratings
Investor sentiment has thawed, highlighted by a record $3 billion sale of junk-rated debt and fresh sovereign rating upgrades. S&P Global Ratings lifted Pakistan in July, and Moody's did so last month, citing improved external buffers, healthier public finances, and reduced local borrowing costs. September's Eurobond sale, paired with substantial SBP FX buying, pushed foreign reserves up to $21.4 billion.
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The outlook for the economy and your portfolio
Looking ahead, the SBP projects inflation in a 5% to 7% band in fiscal 2027, GDP growth of 3.5% to 4.5%, and a current-account balance between 0% and 1% of GDP. For your wallet, the big tells are energy prices, any shift in the US-Iran backdrop, and whether those growth and inflation paths stick close to plan.
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