[ez-toc]KARACHI – In line with market expectations, the Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) decided on Monday to keep the policy rate unchanged at 11 percent, citing moderate inflation but rising risks from recent floods.
“The MPC decided to keep the policy rate unchanged at 11% in its meeting today,” said the Monetary Policy Statement (MPS).
The committee noted that headline inflation remained relatively moderate during July and August 2025, while core inflation continued to decline at a slower pace. Economic activity, reflected in high-frequency indicators including large-scale manufacturing (LSM), also gained momentum.
However, the MPC warned that the near-term macroeconomic outlook has weakened slightly due to the ongoing floods. The temporary yet significant supply shock, particularly to the crop sector, may push up food inflation and widen the current account deficit beyond earlier projections for FY26. Growth is also expected to moderate compared with previous estimates.
“In view of the evolving macroeconomic outlook and the flood-related uncertainty, the MPC deemed today’s decision appropriate to maintain price stability,” the statement said.
Key Developments Since the Last MPC Meeting
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FX Reserves: SBP’s foreign exchange reserves remained stable despite net debt repayments and a current account deficit.
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Inflation Expectations: Consumer and business inflation expectations inched up in September, according to the SBP-IBA sentiment surveys.
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Tax Collection: FBR’s revenue during July–August 2025 fell slightly short of target but still showed strong year-on-year growth.
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Global Trade: Revised US import tariffs have somewhat reduced global trade uncertainty.
Inflation Outlook
The MPC assessed that the real policy rate remains adequately positive to keep inflation within the medium-term target range of 5–7 percent, despite expected short-term volatility.
It noted that the recent floods have heightened uncertainty for near-term inflation, especially for food prices. Weekly SPI data already shows sharp increases in perishables and wheat products. However, part of this spike may be offset by recent favourable adjustments in electricity tariffs.
“On balance, inflation may cross the upper bound of the target range for most of the second half of FY26 before reverting to the target range in FY27,” the MPC said. It also flagged risks from the evolving flood situation, volatile global commodity prices, and possible unanticipated adjustments in energy tariffs.
Background & Market Expectations
At its previous policy meeting on July 30, 2025, the MPC had also kept the policy rate unchanged at 11% due to a worsened inflation outlook after higher-than-expected energy price adjustments.
Analysts widely predicted the status quo this time as well. A Topline Securities survey found 72% of market participants expected no change in the policy rate amid flood-related risks to food and overall inflation. Similarly, Arif Habib Limited (AHL) also forecast the SBP would maintain the rate, cautioning that external pressures may re-emerge as imports of agricultural commodities and cotton pick up to offset flood-related losses.
Recent Economic Indicators
Since the last MPC meeting:
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The rupee has appreciated by 0.5%.
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Domestic petrol prices have decreased by 3%.
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International oil prices have fallen nearly 10% to around $63 per barrel.
According to PBS data, Pakistan’s headline inflation clocked in at 3% YoY in August 2025, down from 4.1% in July. The current account posted a deficit of $254 million in July 2025, following a surplus of $328 million in June.
SBP’s foreign exchange reserves rose by $34 million on a weekly basis, reaching $14.34 billion as of September 5, 2025. Total liquid foreign reserves stood at $19.68 billion, while net foreign reserves held by commercial banks were $5.34 billion.