After slashing the interest rate by 1,000 basis points (bps) from 22pc since June 2024 in seven intervals, the central bank has maintained it at 11pc since May. However, the business community had expressed disappointment over the decision.
“The Monetary Policy Committee (MPC) decided to keep the policy rate unchanged at 11 per cent in its meeting today,” an SBP statement said.
The MPC noted that inflation remained “relatively moderate in both July and August, whereas core inflation continued to decline at a slower pace”.
It cautioned: “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 expectation in FY26.”
Meanwhile, it added, economic growth was projected to moderate 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.”
Floods in the country, which have caused losses estimated at billions of rupees due to crop and land damage, have added pressure to inflation, particularly in agriculture-based products. There has been a significant price increase for items such as rice and vegetables.
Business stakeholders have expressed divergent views on the impact of floods on supply chains, with some citing delays in interprovincial cargo movement and crop damage, while others insisted supplies of food, fuel, and medicines remain normal.
However, the committee observed that the “economy is on a significantly stronger footing to withstand the negative fallout of the ongoing floods” compared to previous major flood events.
“Given the low inflation environment, moderately growing domestic demand and relatively benign global commodity price outlook, the excessive inflationary and external account pressures witnessed after the previous floods are projected to remain in check this time.
“Furthermore, the build-up in external and fiscal buffers over the past two years, which was achieved via a coordinated and prudent monetary and fiscal policy mix, will need to continue to make the economy more resilient to shocks and ensure higher growth on a sustainable basis.”
The statement also said that since the last MPC meeting, SBP’s forex reserves remained stable, despite net debt repayments and a current account deficit; inflation expectations of both consumers and businesses inched up in September in the sentiment surveys jointly conducted by the SBP and the Institute of Business Administration; tax collection by the Federal Bureau of Reserves “fell slightly short of target” during July-August 2025, though it “grew significantly” on a year-on-year basis; and the announcement of revised import tariffs by the US has led to some reduction in global trade uncertainty.
“In view of these developments and outlook, the MPC assessed that the real policy rate remains adequately positive to stabilise inflation within the medium-term target range of five to seven per cent, notwithstanding some expected short-term volatility in inflation out turns.”
The statement further said that inflation in the country rose 4.1pc year-on-year in July before falling to 3pc in August.
“These out turns largely reflected volatility in food and energy prices, whereas core inflation remained on downward trajectory, albeit at a slower pace.”
The MPC noted that the recent floods had increased uncertainty related to the near-term inflation outlook, particularly for food inflation, adding that weekly sensitive price index data had already recorded a “substantial increase” in prices of perishables, wheat and allied products.
Meanwhile, after dropping below the 155,000-point mark on Friday, the Pakistan Stock Exchange (PSX) saw signs of recovery today as it regained that level.
Ahead of today’s meeting, the PSX gained 1,138.1 points at 10:24am to reach 155,577.78.
Shares dropped as low as 154,486.21 points at around 1pm, before closing at 155,384.50, gaining 944.82 points (0.61pc) compared to the previous session in the wake of the MPC announcement.
Last month, Finance Minister Muhammad Aurangzeb noted that there was a “room” for lowering the policy rate by t