The State Bank of Pakistan’s narrative of economic resilience is bolstered by rising investment signals, healthier reserves, and improved investor sentiment. Yet, beneath this progress lies the unresolved question of inflation risk — a reminder that recent history’s price shocks remain fresh in the nation’s memory.
The SBP envisions economic expansion in the corridor of 3.5 to 4.25 percent for FY26, buoyed by nascent rejuvenation within the large-scale manufacturing sector, an anticipated surge in overseas remittances beyond the $40 billion mark, and foreign exchange reserves projected to ascend to $17.5 billion by the close of June next year. Even long-standing sceptics among international credit assessors, previously dubious of Pakistan’s external standing, have relented enough to elevate the nation’s sovereign rating. On the surface, the economy appears to be pivoting towards a more auspicious trajectory — at least in statistical portrayal.
Yet, beneath this seemingly invigorated macroeconomic façade, an obstinate spectre continues to stir — inflation. And this time, it is not merely the chorus of independent economists or market commentators raising the alarm; the central bank itself now acknowledges that price growth may transiently pierce its declared 5–7 percent target band, attributing this to entrenched core inflationary forces. This concession is particularly weighty given recent disclosures regarding the SBP’s direct manoeuvres in the foreign exchange arena.
Public documentation now confirms that between June 2024 and April 2025, the central bank procured in excess of $7.2 billion from the domestic FX market. Roughly $1 billion of that sum swelled the reserve coffers, while the greater share was funnelled towards external debt obligations. The opacity, however, lies in the monetary architecture underpinning these acquisitions — specifically, the method of their rupee financing. Should these dollar purchases have been underwritten by injecting domestic liquidity without subsequent sterilisation, the manoeuvre would have effectively widened the monetary base.
This dynamic offers a plausible rationale for why, despite an aggressive 1,100 basis-point decrescendo in the policy rate in recent months, core inflation has proven obstinately adhesive. It also elucidates why the SBP, having months earlier emphasised a decelerating inflationary arc, now foresees price pressures persisting beyond its preferred threshold. Intriguingly, the most recent Monetary Policy Committee briefing refrained from disclosing whether these FX interventions were counterbalanced through open market sterilisation or alternative liquidity-draining instruments — an omission of consequence.
Inflation is a phenomenon shaped as much by collective expectation as by empirical measurement. When market participants witness the central bank amassing foreign currency and fortifying reserves, they must concurrently perceive the mechanisms designed to forestall such operations from kindling inflationary embers. Absent clear sterilisation protocols, the prevailing perception solidifies: reserves are being replenished at the expense of monetary stability, with the inevitable erosion of the rupee’s purchasing potency as the price.
The SBP’s focus on sturdier economic underpinnings and a more buoyant market mood is not without merit. A revival in intermediate goods and machinery imports signals a rekindling of investment momentum. Foreign exchange reserves now surpass the nation’s net annual debt repayment needs — a notable reversal from the deficits of prior years. Yet, such progress will only retain its credibility if the perils entwined with it are recognised and addressed in full public view.
The inflationary upheaval of 2022–24 is hardly a relic of the past. Barely two years ago, headline inflation vaulted beyond 30 percent, battering household finances and forcing monetary policy into a state of emergency. Any policy choice — however noble in intent — that risks reopening that scar must be debated openly rather than allowed to pass under the veil of quiet assumption.
Fresh data from the Pakistan Bureau of Statistics underscores how price pressures still simmer. For the week ending August 7, the Sensitive Price Indicator (SPI) for combined consumption groups inched upward by 0.05 percent, reaching 328.12 points from the previous week’s 327.94. Year-on-year, the SPI recorded a 1.73 percent increase. The lowest consumption bracket, earning up to Rs17,732, experienced a 0.30 percent rise to 316.97 points. Groups earning between Rs17,733–22,888, Rs22,889–29,517, and Rs29,518–44,175 saw increases of 0.26 percent, 0.19 percent, and 0.14 percent, respectively. Conversely, the highest income tier above Rs44,175 saw a slight 0.06 percent dip. Of the 51 tracked items, prices rose for 12 (23.53%), fell for 12 (23.53%), and remained unchanged for 27 (52.94%).
The chasm between optimism and overconfidence is narrow. While the SBP has prudently cautioned about vulnerabilities in agriculture, external trade balances, and remittance flows, it must also lift the curtain on its own recent interventions — especially those with potential inflationary fallout. If the foreign exchange purchases were sterilised, the public has a right to know the methods and scope. If they were not, the monetary policy framework must incorporate that hazard with greater candour.
It is entirely possible — and indeed necessary — to embrace the signs of an economic rebound while simultaneously demanding transparency over the associated costs. This balance is what will ensure that today’s cautious optimism does not harden into tomorrow’s costly misjudgment.
True economic revival demands more than encouraging numbers; it requires unflinching clarity about the costs and consequences of policy decisions. By pairing optimism with transparency, the SBP can ensure that today’s recovery story does not turn into tomorrow’s avoidable misstep.