Karachi, September 15, 2025 – The State Bank of Pakistan (SBP) on Monday kept its policy rate unchanged at 11 percent, citing ongoing economic challenges and heightened uncertainty following the devastating floods that have disrupted the country’s agriculture and supply chains.
The Monetary Policy Committee (MPC), in its scheduled meeting, stressed that while inflation has remained moderate in recent months and economic activity showed encouraging momentum, the shock from the recent floods requires caution in monetary settings.
The Committee observed that core inflation continued to decline, large-scale manufacturing posted growth, and business confidence showed signs of revival. However, the near-term outlook has weakened due to crop losses and disruptions caused by floods, which are expected to temporarily push up food inflation and widen the current account deficit. As a result, GDP growth projections for FY26 have been revised toward the lower end of the previously estimated range of 3.25 to 4.25 percent.
Despite these challenges, the SBP noted that the economy is in a stronger position compared to previous flood episodes. Inflationary pressures are more contained, external reserves have stabilized, and fiscal buffers are stronger due to coordinated monetary and fiscal management over the past two years. The MPC underlined the importance of continuing reforms, particularly broadening the tax base and addressing losses in state-owned enterprises, to safeguard fiscal space.
On the external side, SBP reserves stood at $14.3 billion as of September 5, supported by resilient remittances and expectations of improved market access to the US. The current account deficit, at $254 million in July, remains manageable but could rise as imports of food and commodities increase due to flood-related losses. Nonetheless, inflows from overseas Pakistanis and planned official financing are expected to keep reserves stable, with projections to reach $15.5 billion by December 2025.
Fiscal indicators also showed resilience. FBR’s tax collection grew 14.1 percent year-on-year during the first two months of FY26, though still slightly below target. Meanwhile, transfers from the SBP and higher petroleum levies are expected to support a healthy primary surplus. Even so, the MPC cautioned that the government may face higher expenditures for relief and rehabilitation due to the floods, while revenue collection could slow if growth moderates.
On the monetary side, private sector credit growth accelerated, reflecting easing financial conditions and increased demand across industries including textiles, telecom, and retail trade. Inflation fell to 3 percent in August after rising to 4.1 percent in July, but the MPC warned that food prices, particularly perishables and wheat, are likely to rise in the coming months. The Committee expects inflation to temporarily exceed its 5–7 percent target band in the second half of FY26, before easing back toward target in FY27.
Concluding its review, the MPC emphasized that maintaining the policy rate at 11 percent is appropriate in the current environment. The decision aims to balance support for growth with the need to anchor inflation expectations and safeguard stability while Pakistan manages the economic fallout of the devastating floods.