SBP holds interest rate at 11pc for fourth straight meeting

KARACHI: The State Bank of Pakistan (SBP) kept its key interest rate unchanged at 11 per cent for a fourth consecutive policy meeting on Monday, citing an improving growth outlook due to a milder-than-expected impact of the recent floods on the economy.

The decision was in line with expectations from economists, analysts and financial market players polled by various media houses and brokerage firms. In a statement released following the monetary policy meeting, Pakistan’s central bank said that crop losses are expected to be manageable, and supply disruptions have proven minimal. Economic activity has gained further momentum, as shown by the strong growth in high-frequency economic indicators. This improvement in growth outlook, compared to previous assessments, was a key reason for extending the pause in the SBP’s monetary easing cycle since June. However, the central bank’s Monetary Policy Committee (MPC) identified several key risks: volatile global commodity prices, challenging export prospects due to evolving tariff dynamics, and potential domestic food supply issues.

Furthermore, policymakers decided to keep interest rates steady as they assessed the impact of previous rate cuts.After lowering rates by 1,100 basis points (bps) since June 2024, the SBP has held them steady at 11 per cent through its last four meetings, with the most recent cut occurring in May.

The SBP revised up its gross domestic product projection for the fiscal year 2026 to the upper half of the earlier projected range of 3.25 per cent to 4.25 per cent. “The MPC viewed the real policy rate to be adequately positive to stabilise inflation within the target range of 5-7 per cent over the medium term,” the SBP said.

“The committee also reiterated the important role of the continued build-up in external and fiscal buffers to absorb future shocks and in facilitating the ongoing pickup in economic activity, without adding excessive pressures on inflation and the external account,” it added.

Inflation is likely to surpass the upper bound of the target range for a few months in 2HFY26Headline inflation rose significantly to 5.6 per cent in September from 3.0 per cent in the previous month. This increase was driven by expected flood-related hikes in food prices, a rise in energy prices, and persistent core inflation. The latest border disruptions with Afghanistan are projected to impact the upcoming inflation numbers.

The MPC noted that, compared to previous flood events, the recent increase in food prices is milder than initially anticipated. Inflation expectations of both consumers and businesses eased, according to the latest surveys cited by the SBP.

Despite these observations, the SBP expects inflation to remain a concern.“Nonetheless, the committee expects inflation to exceed the upper bound of the target range for a few months in the second half of FY26, before reverting to the target range in FY27, it said. “However, this outlook is subject to risks from volatile global commodity prices, magnitude and timing of future energy price adjustments; and uncertainty around prices of wheat and allied products and perishable food items.”