Karachi (Web Desk): The State Bank of Pakistan’s Monetary Policy Committee (MPC) decided on Monday to keep the benchmark interest rate fixed at 11%, marking the third consecutive meeting where no change was made.
The central bank opted for caution, holding back further monetary easing as policymakers weighed the inflationary spillovers from extensive flood damage to crops against the backdrop of a still-fragile economic rebound.
According to the SBP, the severe flooding has created a temporary but notable supply shock, especially in agriculture, which could elevate both headline inflation and the current account deficit beyond earlier forecasts for FY26.
The bank nevertheless underlined that the economy is now far more resilient to shocks than during earlier flood crises, providing a stronger base to withstand the current challenges.
The decision was widely anticipated, with a Reuters poll showing that 13 of 14 market analysts had already projected a status quo stance. Since late June, Punjab’s agricultural belt has been under water, severely disrupting supply chains and stoking inflation concerns.
The floods have so far resulted in close to 950 deaths, the loss of around 6,500 heads of livestock, destruction of more than 8,200 homes, and the displacement of 4.5 million people as floodwaters continue to spread south.
Market participants highlighted that shortages in key staples such as wheat, rice, and vegetables are likely to keep inflation elevated, above the SBP’s medium-term target of 5 to 7%.
While inflation eased to 3% in August from 4.1% in July, the finance ministry—which had expected a range of 4 to 5%—cautioned that weather-related shocks and crop damage could drive prices higher again.
Since June 2024, the central bank has pursued an aggressive easing cycle, trimming rates by 1,100 basis points from the record 22% level set at the height of 2023’s nearly 40% inflation peak.
The most recent cut of 100 basis points came in May after a brief pause in March, with June seeing another hold due to renewed oil price volatility stemming from Middle East tensions.