SBP keeps policy rate unchanged at 11%

Cites economic disruption due to recent floods as main cause; projects GDP growth near the lower end of 3.25 to 4.25%

KARACHI:

The State Bank of Pakistan (SBP) has kept the policy interest rate unchanged at 11%, citing short-term economic disruption due to the recent rains and floods. The bank has projected the GDP growth for FY2025-26 to remain near the lower end of its 3.25% to 4.25% forecast range.

The central bank said while the broader economy remains resilient, the recent floods have increased downside risks to growth, and the current account outlook as well as a risk of rising inflation.

In its latest monetary policy statement, the SBP warned that flood-related damage, particularly to the agricultural sector, is likely to slow economic momentum and exert upward pressure on food prices, potentially pushing inflation above the official 5-7% target range.

Inflation had eased in recent months — recorded at 4.1% in July and 3% in August — but the central bank flagged renewed uncertainty following crop losses and supply chain disruptions.

Despite external debt repayments, the SBP noted that foreign exchange reserves would be stable on the expectations of higher remittance inflows in the coming months. The central bank envisaged that overseas Pakistanis are likely to send increased financial support to families affected by the floods — a development that could help push reserves to $15.5 billion by December 2025.

However, the current account deficit is expected to widen slightly and remain within a range of 0 to 1% of GDP, stated the SBP. It added that better access to export markets, particularly following the US tariff adjustments, may partially offset the external pressures, stemming from flood-related agricultural losses.

The central bank reiterated the importance of maintaining fiscal discipline amid rising government spending on flood relief, warning that weak revenue performance could further constrain policy space.

Despite these challenges, it noted that steady demand for private sector credit signals a degree of underlying confidence in the economy’s recovery trajectory.