Floods Fuel Inflation as SBP Expected to Hold Rate

Pakistan is expected to hold its policy rate as floods push food prices higher and complicate monetary decisions. A Reuters poll of 14 analysts showed 13 expect the State Bank of Pakistan (SBP) to keep the policy rate at 11 percent while one analyst forecast a 50 basis point cut. Flood damage to crops and supply chains is creating uncertainty for inflation and growth.

Analysts warned that losses to agriculture and disrupted logistics could lift food inflation. Waqas Ghani, Head of Research at JS Global Capital, said the central bank may pause in September given the uncertainty but that a 50 to 100 basis point cut remains possible by year end. Sana Tawfik, Head of Research at Arif Habib Limited, estimated agricultural damage could shave about 0.2 percent off GDP growth while noting that reconstruction activity might offset some losses.

Market participants reported sharp short term movements in food prices. Saad Hanif of Ismail Iqbal Securities said wheat prices rose roughly 50 percent in a month in parts of the country. Ahmad Mobeen, Senior Economist at S&P Global Market Intelligence, said manufacturers have raised selling prices because of higher fuel and transport costs and delays in input deliveries caused by flooding.

The SBP has eased policy by 1,100 basis points since June 2024 when the rate peaked at 22 percent. The central bank last cut rates by 100 basis points in May and paused in March and June amid global and domestic pressures. Some analysts believe real rates still permit easing once uncertainty abates. Ammar Habib, an independent analyst, noted that real interest rates remain high enough to allow cuts but stressed that flood driven food inflation is a major constraint.

The Asian Development Bank (ADB) urged stronger risk financing and insurance measures for cities and projects. ADB expert Arup Kumar Chatterjee warned that poor urban planning and low insurance coverage leave cities financially exposed. He noted that natural hazards in Asia and the Pacific caused $65 billion in losses in 2023 with 91 percent uninsured and that 2024 insured losses reached $135 billion. He urged governments to treat insurance as core infrastructure and to embed risk financing into project planning to speed recovery and limit taxpayer burdens.