SBP Likely to Keep Interest Rate Unchanged At 11%

The State Bank of Pakistan (SBP) is expected to keep the policy rate unchanged at 11 percent in the upcoming monetary policy meeting scheduled for December 15, according to a report by Arif Habib Limited (AHL). The projection comes as inflation begins to rise again and external pressures increase, prompting the central bank to adopt a cautious, stability-focused stance. AHL noted that inflation has gradually increased from 4.1 percent in July 2025 to 6.1 percent in November 2025, driven mainly by flood-related food supply disruptions. While the average inflation for the first five months of FY26 remains at 5 percent, analysts expect price pressures to build in the coming months, especially with Ramadan and Eid falling in the second half of FY26. The report warned that inflation could temporarily touch double digits if monthly momentum accelerates. Even so, average inflation for the full year is still expected to remain within the SBP’s medium-term target range of 5 to 7 percent. On the external side, the report highlighted that the PKR has appreciated 1.2 percent so far this fiscal year, supported by stronger remittance inflows and progress under the IMF program. However, the country’s trade deficit widened to USD 2.9 billion in November 2025, a 32.8 percent increase year-on-year, fuelled by higher imports and declining exports. Over the first five months of FY26, the trade deficit has expanded 37.2 percent YoY to USD 15.5 billion, signaling renewed pressure on the current account. Remittances provided some relief, rising 9 percent YoY to USD 3.2 billion in November. The report stated that large-scale manufacturing grew 4.1 percent YoY in the first quarter, showing early signs of economic recovery. However, it emphasized that the SBP is likely to wait for more stability before considering any rate cuts. Bond market trends also point toward an unchanged policy stance, with yields largely stable across both short and long tenors. AHL’s survey of banks, asset managers, insurers and corporates found that 71.6 percent of respondents expect the SBP to keep the rate unchanged, while 28.4 percent anticipate a 50 bps cut.