- SBP holds key coverage charge for third straight time.
- Flood-hit crops elevate inflation dangers, dampen restoration hopes.
- Analysts warn meals shocks could push inflation increased.
The Financial Coverage Committee (MPC) of the State Financial institution of Pakistan (SBP) on Monday introduced retaining the coverage charge unchanged at 11%.
This marks the third straight MPC assembly the place the central financial institution has prolonged a pause in financial easing as policymakers weighed inflation dangers from flood-hit crops towards a fragile financial restoration.
“This non permanent but vital flood-induced provide shock, notably to the crop sector, could push up headline inflation and the present account deficit from earlier expectations in FY26,” the central financial institution mentioned in its assertion.
It, nonetheless, added that the financial system is on a considerably stronger footing to face up to the destructive fallout of the continued floods as in comparison with earlier main flood occasions.
The central financial institution’s transfer was anticipated as 13 of 14 analysts that Reuters surveyed forecast the SBP would maintain its coverage charge at 11%.
Since late June, floods have swamped Punjab’s farmland, disrupting provide chains and stoking inflation fears, with practically 950 individuals killed, 6,500 livestock misplaced, 8,200 homes destroyed and 4.5 million displaced as waters transfer south.
Sana Tawfik, head of analysis at Arif Habib Restricted, mentioned agricultural losses might shave round 0.2% off gross home product progress, although reconstruction could present some offset.
Analysts mentioned flood-driven provide shocks, particularly in wheat, rice and greens, might maintain inflation above the central financial institution’s 5–7% goal.
Saad Hanif of Ismail Iqbal Securities mentioned meals inflation might face “non permanent shocks”, with wheat costs up about 50% in a month.
Inflation eased to three% in August from 4.1% in July, however the finance ministry, which projected 4% to five%, warned crop losses and excessive climate might quickly push costs increased.
“Producers have additionally raised promoting costs, citing increased gas and transport prices and delays in enter deliveries brought on by flooding,” mentioned Ahmad Mobeen, senior economist at S&P International Market Intelligence.
The SBP has reduce charges by 1,100 foundation factors since June 2024, after they stood at a document 22% after inflation peaked close to 40% in 2023. It final reduce by 100 bps in Might, after a March pause, and held regular in June amid oil value pressures from Center East tensions.
Nonetheless, some see room for cuts.
“Actual rates of interest are nonetheless excessive sufficient to permit for a reduce, particularly with the Fed turning dovish, however the floods are inflationary, notably for meals,” mentioned Ammar Habib, an unbiased analyst.
— Extra enter from Reuters
