ISLAMABAD, Oct 27 (Wealth Pakistan) – Pakistan’s monetary indicators remained broadly stable in the first quarter of FY2026, with inflation under control, liquidity sufficient, and the Pakistan Stock Exchange (PSX) reaching a historic high. The performance reflects renewed investor confidence in the country’s macroeconomic management.
Monetary indicators and liquidity trends
According to the Finance Division’s Monthly Economic Update & Outlook (October 2025), the money supply (M2) contracted by 2.6 percent during July 1–October 3, 2025, compared with a contraction of 1.9 percent in the same period last year. The contraction was mainly driven by a reduction in net domestic assets (NDA), which fell by Rs1.245 trillion, while net foreign assets (NFA) increased by Rs173.8 billion.
The report said government borrowing for budgetary support had dropped sharply. Borrowing worth Rs2.04 trillion was retired, compared with Rs1.28 trillion last year. This decline freed up liquidity for private-sector lending and eased crowding-out pressures within the banking system.
Credit expansion and business sentiment
Private-sector credit posted moderate expansion, led by borrowing from manufacturing, telecommunications, and energy sectors. Economists said the trend indicated improving business confidence after a long period of monetary tightening and uncertainty.
At the same time, stable monetary conditions helped maintain balance in financial markets. The Finance Division noted that the combination of controlled inflation and declining interest rates created a conducive environment for economic activity.
PSX achieves historic gains
Pakistan’s capital market delivered outstanding results during the review period. The PSX gained 16,875 points in September, closing at 165,493 points. Total market capitalization rose by Rs1.6 trillion to Rs19.2 trillion. By October 22, the KSE-100 Index reached 166,553 points, marking the highest level in the exchange’s history.
“The surge in equity markets reflects improving investor sentiment following macroeconomic stabilization and a successful IMF review,” the Finance Division said. It added that stable inflation expectations, fiscal discipline, and external balance all contributed to stronger investor confidence.
Stable exchange rate and positive outlook
The report also highlighted that the rupee remained broadly stable against the U.S. dollar, while foreign-exchange reserves climbed to $14.5 billion by mid-October. Economists said the combination of steady prices, falling yields, and a strong equity market reflected the effectiveness of monetary management.
One analyst noted that markets are responding positively to policy clarity and discipline on both fiscal and monetary fronts.
The Finance Division stated that the monetary stance remained consistent with price stability and growth support. The State Bank’s real policy rate stayed positive, helping to anchor inflation expectations while supporting the recovery of business activity.
Policy outlook
Looking ahead, the Finance Division projected that continued stability in interest rates and the exchange rate would reinforce financial sector resilience. It said prudent monetary policy would remain central to Pakistan’s macroeconomic stability in the months ahead.