SBP Expected to Hold Interest Rates at 11% Amid Inflation Concerns

The State Bank of Pakistan interest rate decision has once again become the focus of investors, businesses, and households as analysts expect the central bank to keep the policy rate unchanged at 11 percent. According to a Reuters poll published on December 13, 2025, all surveyed analysts believe the SBP will maintain its current stance due to persistent inflation risks, external pressures, and guidance from the International Monetary Fund. The SBP expected to hold interest rates at 11% reflects a cautious monetary policy approach aimed at protecting price stability and safeguarding Pakistan’s fragile economic recovery.

Why SBP Is Expected to Keep Interest Rates at 11%

The SBP expected to hold interest rates at 11% mainly because inflation risks have not fully disappeared. Although inflation has dropped significantly from the near-40 percent levels seen in 2023, analysts believe that price pressures could return in the coming months. Food prices, transport costs, and flood-related supply disruptions continue to create uncertainty, making it difficult for the central bank to justify immediate rate cuts.

Analysts surveyed by Reuters expect inflation to remain between 6 percent and 8 percent in the short term. However, they warn that inflation may rise again toward the end of fiscal year 2026 as base effects fade and cost pressures resurface. This outlook limits the SBP’s room to ease monetary policy in the near future.

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IMF Influence on SBP Monetary Policy

The International Monetary Fund has played a major role in shaping Pakistan’s current monetary policy stance. In its second review of Pakistan’s economic program, the IMF clearly stated that monetary policy must remain “appropriately tight and data-dependent.” The IMF emphasized that maintaining positive real interest rates is critical to keeping inflation expectations under control.

The SBP expected to hold interest rates at 11% aligns with IMF recommendations. According to the IMF, Pakistan’s tight monetary policy has been instrumental in reducing inflation and rebuilding external buffers. Any premature rate cut could weaken investor confidence, increase inflation expectations, and put pressure on foreign exchange reserves.

Analysts Push Rate Cuts to Late FY26 or FY27

Earlier this year, market participants expected interest rate cuts to begin much sooner. However, the outlook has now shifted. Most analysts now believe that the first SBP rate cut will not happen until the closing months of fiscal year 2026, which ends in June 2026. Some experts have even pushed their forecasts into fiscal year 2027.

This delay reflects growing concerns over inflation volatility, global economic uncertainty, and Pakistan’s external financing needs. The SBP expected to hold interest rates at 11% shows that policymakers prefer stability over short-term stimulus.

Inflation Outlook and Key Risk Factors

Inflation remains the single most important factor behind the SBP’s cautious stance. While headline inflation has eased, several risks remain. Food inflation continues to be unpredictable due to climate-related disruptions, including floods that have affected supply chains. Transport costs remain sensitive to fuel prices, which are influenced by global oil markets and exchange rate movements.

Analysts warn that once favorable base effects fade, inflation could trend upward again. This makes it risky for the SBP to lower rates too early. Maintaining interest rates at 11 percent helps anchor inflation expectations and signals the central bank’s commitment to long-term price stability.

Role of the Rupee and External Pressures

The Pakistani rupee is another major consideration in the interest rate decision. External pressures, including debt repayments and the need to maintain foreign exchange reserves, limit the SBP’s flexibility. A lower interest rate could weaken the rupee, making imports more expensive and adding to inflation.

The SBP expected to hold interest rates at 11% partly to support the currency and maintain confidence among foreign investors. Stable interest rates help prevent sudden capital outflows and reduce volatility in the foreign exchange market.

SBP’s Past Rate Cuts and Current Position

The SBP has already delivered significant monetary easing over the past year. Between June 2024 and May 2025, the central bank cut interest rates by a total of 1,100 basis points. These cuts were made as inflation declined sharply from its 2023 peak.

Since September 2025, the SBP has paused further easing and kept the policy rate steady at 11 percent. This pause indicates that the central bank believes it has reached a neutral zone where further cuts could be risky given existing economic conditions.

Impact on Businesses and Borrowers

For businesses, the decision that the SBP expected to hold interest rates at 11% means borrowing costs will remain relatively high. While this may slow down investment in the short term, it also provides predictability. Companies can plan financing decisions knowing that rates are unlikely to change suddenly.

For consumers, especially those with loans, stable interest rates mean no immediate relief in borrowing costs. However, price stability benefits households in the long run by protecting purchasing power and preventing sharp inflation spikes.

Market Expectations and Investor Sentiment

Financial markets have largely priced in the expectation that the SBP will keep rates unchanged. Investors view policy stability as a positive sign, especially under the IMF program. Bond markets, equity investors, and foreign portfolio investors prefer predictable monetary policy over sudden shifts.

The SBP expected to hold interest rates at 11% also reinforces Pakistan’s commitment to economic discipline, which is crucial for maintaining access to international financing and investor trust.

What Could Trigger Future Rate Cuts?

Despite the cautious outlook, analysts believe rate cuts are still possible in the future if conditions improve. A sustained decline in inflation, stronger foreign exchange reserves, stable global oil prices, and improved fiscal discipline could give the SBP room to ease policy.

However, until these factors align, the central bank is likely to remain cautious. The IMF’s emphasis on data-driven decisions means that inflation trends will remain the key trigger for any future changes.

SBP’s Data-Dependent Policy Approach

The SBP has repeatedly stressed that its decisions are based on incoming economic data. This data-dependent approach allows flexibility while avoiding premature moves. The SBP expected to hold interest rates at 11% reflects this philosophy, as current data does not yet justify further easing.

Policymakers want to ensure that inflation is not only falling but also sustainably low before cutting rates again.

Conclusion

The SBP expected to hold interest rates at 11% highlights Pakistan’s cautious and disciplined monetary policy approach amid lingering inflation risks and external pressures. While inflation has eased from previous highs, uncertainties related to food prices, floods, currency stability, and global economic conditions remain significant. Analysts now believe that interest rate cuts may not begin until late FY26 or even FY27. For now, the State Bank of Pakistan is prioritizing price stability, investor confidence, and economic resilience over short-term growth stimulus, signaling that patience and prudence will define monetary policy in the months ahead.

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