The State Bank of Pakistan (SBP) has kept its key policy rate unchanged at 11% following the latest Monetary Policy Committee (MPC) meeting. This marks the fourth consecutive session where the central bank has maintained a pause in monetary easing, reflecting caution amid persistent inflationary risks and a slow-paced recovery.
Inflation Risks Limit Rate Cuts
The MPC previously reduced the policy rate by one percentage point to 11% in May 2025. Since then, the central bank has chosen to hold the rate steady as inflationary pressures intensified due to flood-related crop losses and disruptions in trade.
Economists believe that while the SBP has room to maintain its current stance, ongoing inflation driven by food shortages and import constraints leaves little margin for further easing.
Recent floods across Punjab severely affected farmlands and industrial operations, pushing prices upward. Moreover, the closure of border crossings with Afghanistan since early October has disrupted food supply chains, leading to a surge in prices of key staples such as tomatoes and apples.
Flood Impact and Food Inflation
The SBP had earlier warned that post-flood inflation might exceed the target range of 5% to 7%. Pakistan’s headline inflation climbed to 5.6% in September, up two percentage points from the previous month. These developments have prompted the central bank to proceed carefully with its monetary strategy.
While recent months saw a decline in inflation due to reduced global oil prices and improved supply conditions, analysts expect temporary spikes in prices owing to the base effect from last year’s low readings.
Analysts Expect Continued Caution
Financial experts suggest that the SBP is likely to maintain its current rate until economic conditions stabilize further. Analysts anticipate that the next rate adjustment may come in the last quarter of fiscal year 2026 if inflation subsides and economic growth strengthens.
Since June 2024, the SBP has reduced interest rates by a cumulative 1,100 basis points from the peak of 22%, achieved when inflation hovered near 40%. The most recent reduction was made in May, followed by consecutive pauses in June, July, September, and now October.
Despite easing inflation earlier this year, the central bank aims to preserve a real interest margin of around 300 basis points, ensuring stability amid uncertainty in global and domestic markets.
Looking ahead, the SBP appears committed to a steady approach. The balance between supporting economic growth and managing inflation remains delicate. With lingering risks from natural disasters, trade disruptions, and fluctuating commodity prices, policymakers are expected to prioritize price stability while cautiously supporting recovery.
