The State Bank of Pakistan (SBP) has anticipated that its foreign currency reserves will rise to $18 billion by the end of June 2026, providing nearly three months of import cover. It will increase further in the next fiscal year.

It made the forecast in its bi-annual Monetary Policy Report, released on Monday, as part of efforts to improve communication with external stakeholders and bring greater transparency to monetary policy decision-making. The report reviews the macroeconomic developments and outlook that guided the Monetary Policy Committee’s decisions since the publication of the August 2025 Monetary Policy Report.

The report noted that macroeconomic conditions and the outlook had improved, supported by a prudent monetary policy stance and continued fiscal consolidation.

Inflation is projected to remain within the 5-7% target range during most of FY26 and FY27, despite some near-term volatility. The current account deficit is forecast to remain contained at 0-1% of GDP in FY26, with a higher trade deficit expected to be partly offset by robust workers’ remittances and planned official inflows. “As a result, the SBP’s forex reserves are expected to rise to $18 billion by June,” it said.

According to the report, economic activity has strengthened, amidst ongoing macroeconomic stabilisation, ease in financial conditions and the recent reduction in the Cash Reserve Requirement to 5%. Accordingly, economic growth prospects have improved, and real GDP growth is now projected in the range of 3.75-4.75% for FY26 and is expected to increase further in FY27.

The Monetary Policy Report also underscored the evolving risks to the macroeconomic outlook. While the risk of widespread impact from recent floods has receded, uncertainty from global tariff-related developments persists, alongside volatility in global commodity prices.

Domestically, challenges from below-target revenue collection and the impact of potential adverse climate events remain sources of vulnerability for the outlook of inflation, external account and GDP growth. “In this context, it is important to speed up progress on structural reforms to increase the economy’s resilience to adverse shocks and to improve productivity and plug losses of state-owned enterprises.”

The report features four box items that discuss key macroeconomic concepts related to the monetary policy. One box provides an update about the monetary policy transmission mechanism in light of the sizable earlier reduction in policy rate from June 2024 onwards and the transmission lag of six to eight quarters.

Another box explains the use of heat maps as an alternative tool for gauging the level of economic activity by consolidating signals from multiple indicators across different sectors into a single visual summary.