Karachi, October 27, 2025: The State Bank of Pakistan (SBP) on Monday decided to keep the key policy rate unchanged at 11 per cent, as policymakers weighed the effects of recent floods, rising food prices, and ongoing inflationary pressures on the economy.
“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 central bank announced on social media platform X (formerly Twitter).
A detailed monetary policy statement issued later said headline inflation “rose significantly” to 5.6 per cent in September, while core inflation remained steady at 7.3 per cent. The SBP attributed the rise in headline inflation primarily to flood-induced increases in food prices, higher energy costs, and persistent core inflation.
However, the MPC noted that the recent surge in food prices was milder than expected, with a slowdown in price increases for key food items such as wheat, sugar, and perishables, according to the Sensitive Price Index (SPI) data.
“The Committee 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,” the statement said.
It warned, however, that this outlook remains vulnerable to volatile global commodity prices, energy price adjustments, and uncertainties surrounding wheat and perishable food prices.
The central bank also observed that the economic impact of recent floods appeared to be less severe than initially anticipated, with limited crop losses and minimal supply disruptions. It noted that economic activity had gained further momentum, reflected in the “robust growth” of high-frequency economic indicators.
The SBP said the overall macroeconomic outlook had improved, though risks remain from global price volatility, weak export prospects, and potential domestic supply issues.
“Given the still-unfolding impact of the earlier reduction in the policy rate, the MPC viewed today’s decision as appropriate to maintain ongoing price stability,” the statement added.
The MPC highlighted several positive developments since its last meeting, including:
- The revision of FY25 GDP growth to 3 per cent from 2.7 per cent by the Pakistan Bureau of Statistics;
- Kharif crop estimates showing production close to last year’s levels despite floods;
- Continued buildup of foreign exchange reserves despite a $500 million Eurobond repayment;
- Pakistan’s staff-level agreement with the IMF on the Extended Fund Facility (EFF) and Resilience and Sustainability Facility (RSF); and
- Easing inflation expectations among consumers and businesses in the latest SBP-IBA surveys.
The central bank added that the real policy rate remains “adequately positive” to stabilize inflation within the 5–7 per cent target range over the medium term. It also stressed the need for continued buildup of external and fiscal buffers to cushion against future shocks and support economic recovery without fueling inflation or external imbalances.
The MPC reiterated the importance of maintaining coordinated and prudent monetary and fiscal policies and pursuing structural reforms to ensure sustainable growth.
The policy rate has remained unchanged since May 2025, despite persistent calls from trade and industry for a reduction to stimulate investment and economic activity. Analysts had widely expected the SBP to maintain the status quo amid renewed inflationary concerns following the floods in Punjab and Khyber Pakhtunkhwa.
Economists note that fears of rising inflation have discouraged the central bank from easing policy despite weak growth and subdued private-sector credit demand. SBP data shows businesses have been reluctant to take new loans in the first quarter of the current fiscal year.
Economic growth has remained sluggish for the past three years, compounding social and fiscal pressures, with nearly 97 million Pakistanis estimated to be living below the poverty line. Industry leaders continue to urge the government to lower borrowing costs and reform the tax regime to revive competitiveness in manufacturing and agriculture.
