https://arab.news/vsksd
- Floods in breadbasket Punjab risk spiking food prices, widening current account deficit
- State Bank says economy stronger than in past flood shocks but trims growth outlook
KARACHI: Pakistan’s central bank on Monday left its benchmark interest rate unchanged at 11 percent for a third straight time, a move analysts described as “cautious” amid devastating floods that risk driving up food prices and undermining the country’s fragile recovery.
Floods in Pakistan’s eastern Punjab province, the country’s breadbasket, since late August have inundated thousands of acres of farmland, destroyed standing crops and killed livestock. Economists and traders have cautioned that the flooding, now moving downstream into Sindh, could elevate both food and overall inflation in the coming months due to crop losses and supply chain disruptions.
In its Monetary Policy Statement, the SBP warned that the “temporary yet significant flood-induced supply shock, particularly to the crop sector, may push up headline inflation and the current account deficit” during the current fiscal year. It projected inflation could rise above the 5–7 percent target band for much of FY26 before easing in FY27, while real GDP growth was trimmed to the lower end of the earlier 3.25–4.25 percent range.
“The Monetary Policy Committee decided to keep the policy rate unchanged at 11 percent in its meeting held on September 15, 2025,” the SBP said in a statement.
The central bank said the economy remained on a “significantly stronger footing” than during previous major flood events, citing improved foreign exchange reserves of $14.3 billion, projected to rise to $15.5 billion by December 2025, along with fiscal buffers built up over the past two years.
Still, the bank flagged heightened uncertainty from the disaster, noting inflation expectations had already ticked up in September consumer and business surveys.
“As per market consensus, the SBP is staying cautious amid rising inflation due to flood affected surge in food prices,” Muhammad Saad Ali, head of research at Lucky Investments Ltd., told Arab News.
He said it was possible for the central bank to slash the key interest rate by around 50–100 basis points but not until the year’s end.
Amreen Soorani, head of research at Al Meezan Investment Management, noted that recurring inflation levels have limited the real interest rate to 2.5 percent, leaving lesser room for monetary easing from here.
“In addition to that, the rising risks of impact from floods on food prices are on the cards as well,” Soorani said.
In its previous decision on July 30, the SBP had also left the policy rate unchanged at 11 percent, surprising analysts who in a Reuters poll had forecast a reduction of 50–100 basis points. At the time, the central bank had pointed to a deteriorating inflation outlook due to rising energy prices.