State Bank of Pakistan decides to maintain policy rate at 11%

The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) on Monday announced its decision to maintain the existing policy rate unchanged at 11%.

This marks the third straight MPC meeting where the central bank has extended a pause in monetary easing as policymakers weighed inflation risks from flood-hit crops against a fragile economic recovery.

The central bank’s move was expected as 13 of 14 analysts that Reuters surveyed forecast the SBP would hold its policy rate at 11%.

Since late June, floods have swamped Punjab’s farmland, disrupting supply chains and stoking inflation fears, with nearly 950 people killed, 6,500 livestock lost, 8,200 houses destroyed and 4.5 million displaced as waters move south.

Sana Tawfik, head of research at Arif Habib Limited, said agricultural losses could shave around 0.2% off gross domestic product growth, though reconstruction may provide some offset.

Analysts said flood-driven supply shocks, especially in wheat, rice and vegetables, could keep inflation above the central bank’s 5–7% target.

Saad Hanif of Ismail Iqbal Securities said food inflation could face “temporary shocks”, with wheat prices up about 50% in a month.

Inflation eased to 3% in August from 4.1% in July, but the finance ministry, which projected 4% to 5%, warned crop losses and extreme weather could soon push prices higher.

“Manufacturers have also raised selling prices, citing higher fuel and transport costs and delays in input deliveries caused by flooding,” said Ahmad Mobeen, senior economist at S&P Global Market Intelligence.

The SBP has cut rates by 1,100 basis points since June 2024, when they stood at a record 22% after inflation peaked near 40% in 2023. It last cut by 100 bps in May, after a March pause, and held steady in June amid oil price pressures from Middle East tensions.

Still, some see room for cuts.

“Real interest rates are still high enough to allow for a cut, especially with the Fed turning dovish, but the floods are inflationary, particularly for food,” said Ammar Habib, an independent analyst.

— Additional input from Reuters

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