Pakistan’s central bank governor has said inflation is expected to hold steady in the coming months, though the prospect of further interest-rate cuts will depend on the economic fallout from recent floods and the outcome of an ongoing International Monetary Fund (IMF) program review, according to Bloomberg.
In an interview from Islamabad on Oct. 3, State Bank of Pakistan Governor Jameel Ahmad said inflation could temporarily exceed the upper limit of the bank’s 5%–7% medium-term target range in early 2026, but will remain within the goal on average during the current and next fiscal years.
Ahmad noted that the central bank remains “very cautious” about monetary policy even after a prolonged tightening cycle. Renewed price pressures from flood damage and external financing risks could limit the scope for further easing, he added.
The remarks come ahead of the next monetary policy meeting on Oct. 27, and as an IMF team visits Pakistan for the second review of its $7 billion loan program. Last month, the central bank kept its benchmark policy rate unchanged for a third straight meeting, following devastating monsoon floods that killed more than 1,000 people and displaced over 4 million, damaging roughly 8% of the nation’s farmland and pushing up food prices.
Despite the challenges, Ahmad said Pakistan’s tight monetary stance has been key in bringing inflation under control. “The policy rate is positive — substantially positive — and this type of tight stance has contributed in controlling the inflation,” he said, noting that monetary and fiscal coordination has shown “good progress.”
Pakistan’s economy is showing signs of recovery, helped by IMF funding that has stabilized foreign reserves and allowed the government to meet debt obligations. The economy is forecast to grow 4.2% in the current fiscal year, up from 2.7% last year, while inflation — which hit a record 38% in 2023 — has eased significantly, giving the central bank room to halve its policy rate to 11%.
Ahmad told Bloomberg that the IMF program is “progressing well”, and that the central bank has outperformed targets on foreign reserves, which have grown nearly fivefold from a low of $3 billion in 2023. The bank has bolstered reserves by purchasing $20 billion from the interbank market over the past three years — a move Ahmad described as a “well thought-out strategic decision.”
The rupee, meanwhile, has remained largely stable since 2024, making it Asia’s most stable currency, according to a Bloomberg index tracking regional peers.
Pakistan has also strengthened its economic and trade ties with the US, with President Donald Trump hosting Pakistani leaders at the White House last month. The country’s 19% tariff rate on exports to the US — the lowest in South Asia — has spurred new interest from international textile buyers, Ahmad said, noting a rise in inquiries that could translate into export growth.
The government is also preparing to legalize cryptocurrency, drawing attention from World Liberty Financial, a firm linked to the Trump family. Ahmad said the new framework will include strict oversight and vetting to mitigate risks from virtual assets.
“This is a strategic move from the government side,” he said. “Soon new players will come in, and we’ve ensured that it should not pose any risks from the central bank’s perspective.”
With inflation moderating, reserves rising, and global investors returning, Pakistan’s policymakers appear to be regaining control of the economy — though the IMF’s verdict and the aftermath of the floods may ultimately determine how quickly the central bank can shift toward a more accommodative stance.
