SBP MPC meeting: policy rate likely to stay unchanged as floods fuel inflation concerns

The State Bank of Pakistan (SBP) is scheduled to meet on September 15, 2025 to determine the policy rate for the next six weeks. Financial experts widely anticipate the Monetary Policy Committee (MPC) will maintain status quo in the rate for the third consecutive time, holding it at May 2025 level of 11% in the wake of the ongoing flood-born food inflation, and rising import payment pressure, according to a local research house.

As many as 72% of the financial market participant expect rate to remain unchanged compared to 37% in last poll, according to a poll conducted by Topline Securities.

“We believe, higher ratio of status quo compared to previous poll is owing to recent floods which may elevate food inflation and overall inflation in coming months amidst expected loss to crops and supply chain concerns,” Topline Research’s analyst Shankar Talreja said in a commentary.

On the other hand, 28% respondents expect a cut of 25 basis points (bps) and above – within this, 6% estimate 25bps cut, 13% anticipate 50bps cut and 9% hope 100bps cut, according to the poll results.

“We (the research house) also expect central bank to maintain status quo in upcoming meet owing to possible inflation risks emanating from recent floods and rising imports,” he said.

Looking back in previous floods of 2010-2011, area under cultivation of major crops i.e. wheat, rice, and cotton was declined in range of 3-18%. While rice production was also affected by 30% in FY11 as per data from economic survey of Pakistan, it added.

Floods disrupt food supply chain, trigger price surge in Pakistan; inflation outlook under threat

Earlier, the central bank slashed the policy rate by massive 11-percentage points in 11 months, halving it to 11% in May 2025 from a peak of 22% in June 2024. The then deceleration in inflation reading and the government aim to support economic activities in the country supported the bank to reduce the rate significantly.

The central bank has maintained the policy rate at 11% in the previous two meetings held in June and July 2025, believing it stood at appropriate level to achieve inflation reading in the required range of 5% to 7% in ongoing fiscal year 2026 and support economic growth in the range of 3.25% to 4.25% in the year.

“The T-Bills yields in secondary market and KIBOR remained unchanged (down 2bps) since last Monetary Policy Committee (MPC) meeting held in July 2025, suggesting wider market believing status quo in upcoming MPC meeting,” Talreja said.

Outlook for policy rate, rupee, inflation:

In Topline Research view, the central bank has further room of around 50-100bps cut as it expects FY26 inflation to average between 6-7%, translating into real policy rate of 500-600bps (policy rate: 11%), higher than historical real rate of 200-300bps.

“We maintain our interest rate target of 10% by Jun 2026, suggesting cut of 100bps – possibly once flood related issues are over.”

The research house also conducted a poll of key market participants on expectations over average inflation reading and rupee-dollar parity for December 2025 and June 2026 (FY26).

On Inflation side, 41% of the respondents believe that inflation will remain above 7%, while 34% expect it in the range of 6-7%.

“We (the research house) expect Pakistan inflation to average between 6-7% for FY26,” analyst said.

On currency side, 50% participants expect currency in range of Rs285-290/$ by end of December 2025 and while 34% believe that it will be in the range of Rs282-285/$.

“We expect currency to clock in at Rs285-290 by December 2025 and Rs295-300 by Jun 2026,” he said.