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Pakistan Keeps Key Interest Rate Unchanged Amid Flood and Inflation Concerns

Strategic Insights

— 2 min read

The State Bank of Pakistan's Monetary Policy Committee (MPC) has decided to maintain the policy rate at 11% after weighing the impact of recent floods and higher food prices on inflation. Despite concerns over inflation and economic activity, the MPC deemed the current rate appropriate to maintain price stability, citing a recent slowdown in price increases of major food items and a more contained impact of the floods on the economy. Additionally, the MPC noted improvements in economic indicators, such as robust growth in high-frequency economic indicators, and a rise in foreign exchange reserves. However, the committee remains cautious about uncertainties arising from volatile global commodity prices, challenging export prospects, and potential domestic food supply frictions.

Key Takeaways:

  • The SBP's Monetary Policy Committee (MPC) has decided to keep the policy rate unchanged at 11% despite concerns over inflation and economic activity.
  • Headline inflation rose to 5.6% in September, mainly due to the expected flood-induced increase in food prices and an uptick in energy prices.
  • Core inflation remained unchanged at 7.3% in September, reflecting a recent slowdown in price increases of major food items, such as wheat and allied products, sugar, and perishable items.
  • The MPC expects inflation to exceed the upper bound of the target range for a few months in H2-FY26, before reverting to the target range in FY27.
  • Economic activity has gained further momentum, as depicted by robust growth in high-frequency economic indicators.
  • The MPC assessed that the impact of the recent floods on the broader economy appears to be somewhat lower than anticipated, with likely contained crop losses and minimal supply disruptions.
  • Foreign exchange reserves continued to increase despite the repayment of a $500 million Eurobond.

Statistics:

  • The policy rate was kept unchanged at 11% on October 27, 2025.
  • Headline inflation rose to 5.6% in September, up from previous periods.
  • Core inflation remained unchanged at 7.3% in September.
  • The MPC expects inflation to exceed the upper bound of the target range for a few months in H2-FY26.
  • Foreign exchange reserves increased despite the repayment of a $500 million Eurobond.

Sources:

  • 'The Monetary Policy Committee (MPC) decided to keep the policy rate unchanged at 11 per cent in its meeting held on October 27, 2025,' the SBP announced on X.
  • A monetary policy statement issued by the SBP on X, stated that headline inflation 'rose significantly' to 5.6% in September, while core inflation remained unchanged at 7.3%.
  • The Pakistan Bureau of Statistics revised real GDP growth in FY25 to 3% from the previous estimate of 2.7%.
  • The Federal Committee on Agriculture reported initial estimates of major kharif crops close to last year's production, despite the recent floods.
  • SBP's foreign exchange reserves continued to increase, despite the repayment of a $500 million Eurobond.
  • Pakistan reached a staff-level agreement with the IMF on the EFF and RSF reviews.

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