KEY POINTS
- Policy rate retained at 11pc to sustain price stability
- Flood damage less than expected; agriculture and industry show resilience
- FX reserves rise to $14.5bn; current account posts $110m surplus
- SBP revises FY26 growth outlook upward to upper half of 3.25–4.25% range
ISLAMABAD: The State Bank of Pakistan (SBP) on Monday kept its policy rate unchanged at 11 percent, citing improved macroeconomic conditions and rating the impact of recent floods on the broader economy milder than anticipated.
In its Monetary Policy Statement, the central bank stated that crop losses were contained, supply disruptions were minimal, and the post-flood recovery in agriculture was likely to support upcoming Rabi crops.
“The impact of the recent floods appears to be somewhat lower than anticipated… crop losses are likely to be contained, whereas supply disruptions turned out to be minimal,” the MPC said in the statement released on the SBP website.
It added that the broader macroeconomic outlook had improved, consequent upon sustained industrial momentum, steady foreign exchange inflows, and a continued buildup in reserves.
Headline inflation rose to 5.6 per cent in September, up from 3.0 per cent in August, while core inflation remained stable at 7.3 per cent.
The MPC highlighted a series of positive developments since its last meeting, including the Pakistan Bureau of Statistics revising FY25 GDP growth upward to 3 per cent, major Kharif crops performing near the levels of last year despite flooding, and the country reaching a staff-level agreement with the IMF on the Extended Fund Facility (EFF) and Resilience and Sustainability Facility (RSF) reviews.
The statement said that large-scale manufacturing expanded by 4.4 per cent during July–August FY26, compared with a slight contraction last year, reflecting improved industrial activity across the automobile, cement, fertiliser, and petroleum sectors.
With private-sector credit growing by 17 per cent, the SBP stated that real GDP growth was now expected to be in the upper half of its earlier projected range of 3.25–4.25 per cent.
On the external front, the current account recorded a surplus of $110 million in September, bringing the Q1-FY26 deficit to $594 million.
Despite repayment of a $500 million Eurobond, the central bank’s reserves rose to $14.5 billion by October 17.
The SBP projects reserves to reach $15.5 billion by December 2025 and around $17.8 billion by June 2026, with the current account deficit expected to be contained in the range of 0-1 per cent of GDP.
The Committee noted that flood-related import requirements were lower than previously anticipated, helping to contain the trade gap.
It also observed that post-flood rehabilitation spending would be accommodated within budgeted fiscal resources, with overall and primary balances likely to remain in surplus in the first quarter of FY26.
Headline inflation, the MPC said, reflected a temporary uptick in food and energy prices linked to the floods, but the surge was milder than feared.
The Committee expects inflation to exceed the upper bound of the 5–7 per cent target range for a few months before easing back to target in FY27, subject to risks from commodity prices and domestic food supplies.
Reiterating that the real policy rate remains adequately positive, the MPC stated that continued coordination between monetary and fiscal policies, along with structural reforms, would be key to sustaining economic stability and medium-term growth.
