FX.co ★ Pakistan Keeps Policy Rate at 11% Amid Flood Concerns

In September, the State Bank of Pakistan opted to maintain its benchmark policy rate at 11%, aligning with market expectations for the second straight decision to leave rates unchanged. The devastating floods in Punjab have severely impacted farmland, causing disruptions in supply chains. Consequently, the prices of key commodities such as wheat, rice, and vegetables have surged. Manufacturers have been compelled to hike selling prices due to rising fuel and transportation costs and delays in receiving essential inputs. While headline inflation decelerated to 3.0% in August—below the central bank’s target range of 5-7%—the potential risks stemming from escalating food prices and agricultural damage from extreme weather could hinder further reduction in inflationary pressures. Regarding GDP, agricultural losses may pose a challenge to economic growth; however, reconstruction activities could partially mitigate these effects. In light of these uncertainties, policymakers have decided to maintain current rates, aiming to balance inflation risks with economic stability.