State Bank Of Pakistan Holds Policy Rate Steady Amid Flood Concerns**

Islamabad: The State Bank of Pakistan (SBP) maintained its benchmark policy rate at 11% amid concerns about the economic impact of recent floods. The central bank, in its monetary policy statement, acknowledged the floods as a “temporary yet significant supply shock,” particularly to agriculture, which could elevate inflation and widen the current account deficit.

Despite the challenges posed by the natural disaster, the SBP projects economic expansion for fiscal year 2026 to be within a range of 3.25% to 4.25%. This prediction is lower than prior evaluations but reflects the bank’s assessment of the current economic landscape. The bank’s Monetary Policy Committee (MPC) expressed confidence that the current stable macroeconomic environment, coupled with lower inflation, robust domestic demand, and falling global commodity prices, will mitigate the adverse impact of the floods compared to past experiences.

The MPC expects the current account deficit to stay within the 0–1% of GDP range for FY26. Although the floods are anticipated to increase the trade deficit, Pakistan’s improved trade relations with the US are expected to partially counteract this effect. The committee emphasized the importance of a cautious approach to both monetary and fiscal policies to maintain stability. Remittances, a vital source of foreign exchange, are predicted to surpass the earlier projection of US$40 billion, showing strength and the potential to rise further, following a pattern seen in previous natural calamities.

Pakistan’s external debt obligations are projected to total US$26.1 billion in FY26, matching the previous fiscal year’s figure. This sum comprises approximately US$22 billion in principal repayments and the rest in interest payments. To date, the government has addressed US$3.5 billion of these dues, including US$1.5 billion in repayments and US$2.0 billion in rollovers. Based on the expected inflow of planned official funds, the SBP anticipates its foreign exchange reserves to reach US$15.5 billion by December 2025. The SBP also declared its intention to launch a program supported by the World Bank’s Climate Fund Facility to assist borrowers affected by the floods.