The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) on Monday decided to keep the policy rate unchanged at 12%, citing expectations of a temporary rise in inflation between March and May. In its announcement, the MPC stated: “At its meeting today, the committee decided to keep the policy rate unchanged at 12 percent.” “Notwithstanding this decline, the committee assessed the risks posed by the inherent volatility in these prices to the current declining trend in inflation. At the same time, core inflation is proving to be more persistent at an elevated level, and thus an uptick in food and energy prices may lead to an increase in inflation,” the MPC stated in its latest policy review. The committee also noted that economic activity is showing signs of improvement as reflected in recent high-frequency indicators. However, concerns remain regarding external account pressures due to rising imports and weak financial inflows. “On balance, the MPC assessed the current real interest rate to be adequately positive on a forward-looking basis to sustain ongoing macroeconomic stability,” it added. The decision follows a review by an International Monetary Fund (IMF) delegation which assessed Pakistan’s $7 billion bailout program, including discussions on revenue targets and taxation measures that may impact inflation and monetary policy. Since June 2024, the SBP has implemented an aggressive monetary easing cycle, reducing the policy rate by a total of 1,000 basis points (bps) over six months. Inflation dropped to 2.4% in January, the lowest in over nine years, and is projected to decline further to 2.2% in February. However, core inflation remains high, the current account deficit is widening, and market yields are rising, prompting analysts to suggest that the SBP may slow the pace of future rate cuts. If the IMF review is approved before the June budget, Pakistan could unlock the next tranche of funding as part of its ongoing economic reform commitments under the bailout program.