Pakistan CB holds interest rate at 11% for fourth time in a row

Pakistan’s central bank kept its key interest rate unchanged at 11% on Monday, it said on its website, a fourth straight hold, as recent floods had a milder-than-expected impact on crops and inflation while growth and reserves continued to improve.

The State Bank of Pakistan said the policy decision aimed to maintain price stability as earlier rate cuts continue to work through the economy.

All 10 analysts surveyed had expected the central bank to hold the policy rate steady.

The bank said the overall macroeconomic outlook has improved since its last meeting, with better-than-expected crop yields, stronger industrial activity, and a rebound in high-frequency indicators.

It revised up its gross domestic product forecast for fiscal year 2026, which ends in June, to the upper half of its earlier 3.25-4.25% range.

The central bank expects inflation to stay above its 5-7% target range for a few months in the second half of the current fiscal year, before easing within that range in the next fiscal year.

It cited risks from volatile global commodity prices, future energy price adjustments, and uncertainty around wheat and perishable food prices.

The bank said Pakistan’s post-flood rehabilitation spending was likely to be met through budgeted resources, and urged continued fiscal discipline to meet balance targets and ensure long-term sustainability.

That marks a shift from September, when the bank warned that floods could push inflation above its 5-7% target.

Headline inflation rose to 5.6% in September from 3.6% in August after floods hit crops, while border disruptions with Afghanistan are expected to weigh on the next reading.

The central bank added that the current account deficit is expected to remain within the 0-1% of GDP range in fiscal 2026, with the realization of official inflows projected to raise foreign exchange reserves to $15.5 billion by December 2025 and around $17.8 billion by June 2026.

Having lowered rates by 1,100 basis points since June 2024, when they peaked at 22%, the SBP has held steady through its last four meetings, with the most recent cut in May.

The current account posted a surplus of $110 million in September 2025, containing the cumulative deficit to $594 million during Q1-FY26. This was broadly in line with the MPC’s expectations.

While exports continued to grow moderately, imports rose at a relatively faster pace, resulting in a widening trade deficit. At the same time, workers’ remittances remained resilient. This, along with net financial inflows, increased the SBP’s FX reserves to $14.5 billion as of October 17.

Going forward, imports are likely to gain further traction, in line with the projected pickup in economic activity; though the flood-induced import requirements are expected to be somewhat lower than anticipated earlier.

Agencies