MPC set to decide policy rate as floods stoke inflation fears

The State Bank of Pakistan (SBP) is scheduled to hold its Monetary Policy Committee (MPC) meeting— the second of the ongoing fiscal year— on Monday to decide on the key policy rate.

In the previous monetary policy meeting, held on June 30, 2025, the committee decided to keep the policy rate unchanged at 11% as the inflation outlook was somewhat worsened in the wake of higher-than-anticipated adjustments in energy prices, especially gas tariffs.

Analysts expect that the MPC will continue to keep the policy rate unchanged in the upcoming meeting, as inflation is projected to increase due to recent flooding.

The Topline Securities survey also indicates that 72% of the market participants expect the rate to remain unchanged owing to recent floods, which may elevate food inflation and overall inflation in the coming months, amidst expected loss to crops and supply chain concerns.

Similarly, Arif Habib Limited (AHL), another brokerage house, expected SBP to maintain the policy rate at 11 in the Sep’25 meeting.

“While current headline inflation and external stability provide room for easing, the impact of recent floods, leading to inflationary pressures, fiscal concerns, and the risk of current account slippage, warrants caution,” read the report.

AHL warned that external pressures may re-emerge as imports pick up, particularly in agriculture and cotton, to offset flood-related damage to domestic production.

Since the last MPC meeting, several key economic developments have occurred.

The rupee has appreciated by 0.5%, while petrol prices have decreased by 3%.

Internationally, oil prices have declined by nearly 10% since the last MPC, hovering around $63 per barrel.

Pakistan’s headline inflation clocked in at 3% on a year-on-year (YoY) basis in August 2025, a reading lower than that of July 2025, when it had stood at 4.1%, showed Pakistan Bureau of Statistics (PBS) data.

In addition, the country’s current account posted a deficit of $254 million in July 2025, following a surplus of $328 million recorded in June 2025 and compares with a deficit of $350 million in July 2024.

The foreign exchange reserves held by the SBP increased by $34 million on a weekly basis, clocking in at $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 amounted to $5.34 billion.