- Analysts expect no rate cut in upcoming SBP policy meeting.
- Rising food prices keep central bank cautious on rate decision.
- IMF urges SBP to keep monetary policy tight and data-driven.
The State Bank of Pakistan (SBP) is expected to maintain its key interest rate at 11% for a fifth straight meeting on Monday, with analysts citing inflation risks from food prices and external pressures.
A majority of analysts and surveys from brokerage houses expect no cut in the policy rate during next week’s meeting. Headline inflation has been gradually increasing, rising from 4.1% in July to 6.1% in November, largely due to disruptions in the food supply caused by floods, The News reported on Sunday.
After lowering rates by 1,100 basis points (bps) since June 2024, the SBP has held them steady at 11% through its last four meetings, with the most recent cut occurring in May.
An analyst at Arif Habib Limited (AHL) said in a recent note that the central bank is likely to keep rates steady at the December meeting. This decision would aim to maintain stability while adopting a cautious stance, as the base effect that had kept headline inflation low is now fading.
“The slight widening of the current account deficit and the early stage of domestic economic recovery further support a prudent, wait-and-see approach from the central bank,” it added.
According to the AHL report, inflationary pressures may increase in the near future. Seasonal factors, such as Ramazan and Eid occurring in the second half of fiscal year 2026, could drive monthly inflation rates higher. “There remains a possibility that inflation temporarily tests double-digit levels if monthly momentum picks up; however, the full-year FY26 average is still likely to remain within the SBP’s medium-term target range of 5-7%,” it said.
On the external front, conditions are generally stable, but they require careful monitoring. Rising import demand and changing trade dynamics could create additional pressure ahead, the report noted.
Some analysts now believe that the SBP will not start easing monetary policy until the next fiscal year, beginning in July 2026.
“Our base case assumes a reduction of 100 bps [basis points] in interest rates during FY27, while remaining unchanged for the remainder of FY26,” said Mustafa Mustansir, head of research at Taurus Securities Limited.
Analysts said that the SBP’s inclination to maintain positive real interest rates would make policymakers cautious.
“An unchanged rate also helps preserve positive real interest rates and aligns with IMF-backed policy discipline, especially amid still-fragile external buffers,” said Saad Hanif, head of research at Ismail Iqbal Securities.
“With the bulk of easing already delivered earlier, the MPC [Monetary Policy Committee] is likely to wait for clearer, sustained disinflation before considering further cuts,” Hanif added.
The International Monetary Fund, in a staff report released on Thursday, said the monetary policy needs to remain sufficiently tight and data-driven to keep inflation within the SBP’s target range. The report has noted that the central bank’s cautious approach has helped manage inflation risks despite volatile conditions and temporary declines in headline inflation. The IMF said the SBP has kept the policy stance positive in real terms on a forward-looking basis.
“Going forward, the SBP should continue to carefully monitor the recent floods’ impact on inflation and the external position and stand ready to act decisively to maintain well-anchored expectations,” it said.
