This paper provides empirical evidence that how monetary policy affect banks’ profitability in case of Pakistan. The paper used annual data of the 15 banks including both conventional and Islamic banks covering the period from 2005 to 2015. Fixed-effect and random-effect model are used to provide empirical evidence the impact of monetary policy indicators on banks’ profitability. Lending, deposit and interest rate spread as a monetary policy indicators, ROA and ROE as a banks’ profitability measures and inflation rates and GDP growth as a macroeconomic indicators were used. Banks specific variables are being used in the research. There is a significant and positive relationship between lending and deposit interest rates and ROA. While insignificant relation between interest rate spread and ROA. Similarly insignificant relation between monetary policy indicators and ROE. It has been observed that when monetary policy is tight, then it creates burden on small banks and aggregate lending has been reduced. The empirical results have found strong evidence that monetary policy has a strong influence on the profitability. The selected macroeconomic variables are found to have a negligible impact on banks’ profitability. The study observe that during monetary tightening, aggregate lending of all the bank decreases, which directly decreases the level of investment that affects the growth and output level of the economy. This paper made an attempt to provide a real picture of the monetary policy and its effect on real economy. The investigations of the paper are important for the future researchers as well as for policy makers. Supervisor:- Dr. Abdul Rashid