The State Bank of Pakistan (SBP) on Monday reduced its policy rate by 50 basis points to 10.5 per cent, effective from December 16.

In a statement, the monetary policy committee (MPC) noted that inflation remained within the 5-7pc target range on average during July-November FY26, though it said that core inflation proved to be “relatively sticky”.

“On balance, the inflation outlook remains broadly unchanged, mainly owing to the relatively benign global commodity prices and anchored inflation expectations, amidst [a] prudent monetary policy stance,” the statement read.

The MPC further observed that economic activity was increasing based on an improvement in key high-frequency indicators, including a higher-than-anticipated increase in large-scale manufacturing during the first quarter of the 2026 fiscal year.

“Nonetheless, the committee noted that the global environment remains challenging, particularly for exports, which may have some implications for the macroeconomic outlook,” the statement read.

“In this backdrop, while ensuring the ongoing price stability, the MPC noted the available space to reduce the policy rate to support sustainable economic growth.”

Additionally, the committee observed some developments since its last meeting in May, namely a rising unemployment rate from 2020-21, increasing foreign exchange reserves and “sizeable” debt repayments and increasing consumer confidence. It did note that business confidence “moderated slightly”.

“Led by sizable SBP profit transfer, the overall and primary fiscal balances recorded surpluses during Q1-FY26,” the statement read. “The global environment remains fluid, characterised by generally supportive commodity prices, but also evolving tariff-related dynamics and challenging financial conditions.”

The MPC added that high-frequency indicators support previous assessments of ongoing momentum in sectors, such as large-scale manufacturing. It further noted that the sale of automobiles, fertiliser, cement and the imports of machinery and intermediate goods, “all signal a positive outlook for industrial activity”.

On the other hand, the committee said that the ongoing challenging export environment poses some risks for industrial outlook.

“In the agriculture sector, incoming information about major crops also support the previous assessment,” the statement read. “The latest information on area under wheat crop, input conditions and government-backed incentive schemes indicates that wheat........

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