The Monetary Policy Committee decided to keep the policy rate unchanged at 11 percent in its meeting held today.
Most analysts expected that MPC will continue to keep the policy rate unchanged in the meeting, as inflation is projected to increase due to recent flooding.
The Committee noted that inflation remained relatively moderate in both July and August, whereas core inflation continued to decline at a slower pace. Economic activity— as captured by high-frequency economic indicators, including large-scale manufacturing (LSM)— gained further momentum.
However, the near-term macroeconomic outlook has deteriorated slightly in the wake of the ongoing floods. This temporary yet significant flood-induced supply shock, particularly to the crop sector, may push up headline inflation and the current account deficit from earlier expectations in FY26. Meanwhile, economic growth is projected to moderate as compared to the previous assessment. In view of the evolving macroeconomic outlook and the flood-related uncertainty, the MPC deemed today’s decision appropriate to maintain price stability.
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The MPC observed that the economy is on a significantly stronger footing to withstand the negative fallout of the ongoing floods as compared to previous major flood events.
Given the low inflation environment, moderately growing domestic demand, and relatively benign global commodity price outlook, the excessive inflationary and external account pressures witnessed after the previous floods are projected to remain in check this time. Furthermore, the build-up in external and fiscal buffers over the past two years— achieved via a coordinated and prudent monetary and fiscal policy mix— will need to continue to make the economy more resilient to shocks and ensure higher growth on a sustainable basis.
The Committee noted the following key developments since its last meeting. First, SBP’s FX reserves remained stable despite net debt repayments and a current account deficit. Second, inflation expectations of both consumers and businesses inched up in September in the SBP-IBA sentiment surveys.
Third, FBR tax collection fell slightly short of target during July–August 2025, though it grew significantly on a y/y basis. Lastly, the announcement of revised import tariffs by the US has led to some reduction in global trade uncertainty.
In view of these developments and outlook, the MPC assessed that the real policy rate remains adequately positive to stabilize inflation within the medium-term target range of 5–7 percent, notwithstanding some expected short-term volatility in inflation outturns.
