SBP keeps policy rate unchanged at 11%

In line with market expectations, the Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) has decided to keep the policy rate unchanged at 11% on Monday.

“The MPC decided to keep the policy rate unchanged at 11% in its meeting today,” read the MPS.

The committee noted that inflation remained relatively moderate in both July and August, whereas core inflation continued to decline at a slower pace.

“Economic activity – as captured by high-frequency economic indicators, including large-scale manufacturing (LSM) – gained further momentum.

“However, the near-term macroeconomic outlook has deteriorated slightly in the wake of the ongoing floods. This temporary yet significant flood-induced supply shock, particularly to the crop sector, may push up headline inflation and the current account deficit from earlier expectations in FY26.

“Meanwhile, economic growth is projected to moderate as compared to the previous assessment.

“In view of the evolving macroeconomic outlook and the flood-related uncertainty, the MPC deemed today’s decision as appropriate to maintain price stability,” it said.

The committee noted the following key developments since its last meeting.

“First, SBP’s FX reserves remained stable, despite net debt repayments and a current account deficit.

“Second, inflation expectations of both consumers and businesses inched up in September in the SBP-IBA sentiment surveys.

“Third, FBR tax collection fell slightly short of target during July-August 2025, though it grew significantly on y/y basis.

“Lastly, the announcement of revised import tariffs by the US has led to some reduction in global trade uncertainty,” read the MPS.

Inflation Outlook

The MPC assessed that the real policy rate remains adequately positive to stabilize inflation within the medium-term target range of 5 – 7%, notwithstanding some expected short-term volatility in inflation outturns.

The MPC noted that the recent floods have increased uncertainty related to the near-term inflation outlook, particularly for food inflation.

“Weekly SPI data has already recorded a substantial increase in prices of perishables and wheat and allied products.

“However, some of this impact of higher food prices on overall inflation is likely to be offset by recent favourable adjustments in electricity tariffs.

“On balance, the committee assessed that inflation may cross the upper bound of the target range of 5-7% for most of the second half of FY26, before reverting to the target range in FY27.

“At the same time, the MPC observed that this outlook is susceptible to multiple risks, particularly those stemming from the evolving flood situation, volatile commodity prices, and unanticipated adjustments in energy prices.”

Previous MPC

In the previous monetary policy meeting, held on July 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.

The status quo is in line with market anticipations as analysts have expected that the MPC would continue to keep the policy rate unchanged, as inflation is projected to increase due to recent flooding.

The Topline Securities survey indicated 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%.

“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.