The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) on Monday decided to maintain the benchmark interest rate at 11%, marking the third consecutive meeting where the central bank has held rates steady.

The decision was widely expected by market participants. A Reuters poll revealed that 13 out of 14 analysts had forecast the central bank would continue its pause. Policymakers balanced the risks of rising food inflation from devastating floods against the need to support Pakistan’s fragile economic recovery.

The floods that have swept across Punjab since late June have caused widespread destruction, killing nearly 950 people, displacing 4.5 million, and destroying crops, livestock, and homes. Analysts warned that agricultural damage could push food inflation higher, particularly in wheat, rice, and vegetables.

Sana Tawfik, head of research at Arif Habib Limited, estimated that agricultural losses could shave around 0.2% off GDP growth, though reconstruction efforts may partly offset the impact. Similarly, Saad Hanif of Ismail Iqbal Securities cautioned that food prices had already spiked, with wheat up nearly 50% in just one month.

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While inflation eased to 3% in August from 4.1% in July, the Finance Ministry has warned that extreme weather could push prices back up in the coming months. “Manufacturers have also raised selling prices, citing higher fuel and transport costs and delays in input deliveries caused by flooding,” said Ahmad Mobeen, senior economist at S&P Global Market Intelligence.

Despite these pressures, some analysts believe there is room for easing. “Real interest rates are still high enough to allow for a cut, especially with the Fed turning dovish, but the floods are inflationary, particularly for food,” noted independent analyst Ammar Habib.

Economic snapshot since July

Since the last MPC meeting on July 30, several key indicators have shifted:

• The rupee gained 0.5%.

• Petrol prices fell 3%, while global oil prices slid nearly 10% to around $63 a barrel.

• The current account surplus of $328 million in June turned into a $254 million deficit in July.

• SBP’s foreign exchange reserves rose to $14.34 billion by September 5, with total liquid reserves reaching $19.68 billion.