EDITORIAL: Pakistan Bureau of Statistics (PBS) has released the estimated Consumer Price Index (CPI) for November – declining to 6.1 percent against 6.2 percent in October year-on-year. This rise to 6.2 percent in October is attributed to the June 2025 floods, though as per the PBS the CPI was estimated at 3.2 percent in June, 4.1 percent in July and 3 percent in August.
It was not until September that CPI rose to 5.6 percent — a timeline that may have coincided with the International Monetary Fund’s (IMF’s) technical assistance on addressing “important shortcomings” in data sources accounting for around a third of the Gross Domestic Product inclusive of formulating “a new Producer Price Index.”
The insistence of the Fund in all documents/press releases relating to Pakistan since the approval of the 7 billion dollars Extended Fund Facility programme in October 2024 has been on the State Bank of Pakistan (SBP) implementing appropriately tight and data dependent monetary policy to anchor inflation within the central bank’s target range — 5 to 7 percent.
Be that as it may, the discount rate has remained at 11 percent since June this year, a rate that is more than double the 5.01 percent average for July-November 2025. The usual practice was to allow the rate to fluctuate between 2 and 3 percent of the CPI.
It is however unclear whether the SBP is using the CPI as the yardstick to determine the discount rate, a policy decision taken during the 2019 IMF programme with the concurrence of the then Governor Baqir who was plucked from his then position as IMF’s Resident Representative in Egypt; or whether the Bank is using core inflation (non-food and non-energy) as the yardstick, given that this was the preferred indicator in pre-2019 years.
Weighted trimmed mean rural core inflation increased by 6.4 percent on a year-on-year basis in November 2025 as compared to a rise of 6.8 percent in October 2025 and 7.5 percent in November 2024. Weighted trimmed mean rural increased by 6.4 percent year-on-year in November this year, compared to a rise of 6.8 percent in October 2025 and a rise of 7.8 percent in November 2024. If core inflation was the main determinant of the discount rate, the Monetary Policy Committee (MPC) could have reduced the rate by 50 to 100 basis points during its last meeting held on 27 October 2025.
The National Institute of Disaster Management and National Disaster Management Authority co-authored a report titled “A Comprehensive Study of Flood Events in Pakistan 1950-2025” and proposed the following measures; (i) strengthening climate resilience through adaptive infrastructure and early warning system through construction of infrastructure that can withstand flooding, (ii) addressing Urban Flooding Through Sustainable Infrastructure and Smart Planning Urban flooding, particularly in cities like Karachi, Lahore and Rawalpindi, (iii) modernising drainage infrastructure, and (iv) enhancing Transboundary Water Cooperation for Effective Flood Management in the Indus Basin. All four of these recommendations remain pending, and relations with India continue to be at an impasse.
To conclude, it is critical for the MPC chaired by Governor SBP to identify if the CPI or core inflation is the determinant of the decision to adjust the discount rate or whether that decision has been outsourced to the Fund for as long as the country is on the Fund programme (scheduled to end thirty-nine months after the loan approval in October 2024).
Copyright Business Recorder, 2025
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