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Pakistan Central Bank expected to Hold Interest Rates Amid Inflation Concerns
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Pakistan’s state Bank of Pakistan (SBP) is widely anticipated to maintain its current interest rate of 11% when policymakers meet on Monday.This decision comes as analysts revise expectations for potential rate cuts,now forecasting a possible easing cycle won’t begin until late 2026,following warnings from the International Monetary Fund (IMF) regarding persistent inflation risks.
A Reuters poll of 12 analysts unanimously predicts no change to the policy rate at the upcoming meeting. the shift in expectations reflects growing concerns about the sustainability of Pakistan’s economic recovery and the need for continued monetary tightening.
Inflationary Pressures Persist
A majority of analysts surveyed foresee inflation remaining within the 6%-8% range in the coming months. Though, they anticipate a resurgence toward the end of fiscal year 2026 as the impact of previous favorable base effects diminishes and prices for essential goods – especially food and transport – remain volatile.These price fluctuations are largely attributed to ongoing supply disruptions stemming from recent flooding.
Most experts now believe the SBP will delay any easing of monetary policy until the final months of fiscal year 2026, which concludes in June 2026. Some forecasts even push the timeline for the first rate reduction into fiscal year 2027, beginning in July 2026.
IMF Urges Caution on Rate Cuts
The IMF, in a review released on Thursday, emphasized the importance of maintaining a “appropriately tight and data-dependent” monetary policy. The fund stressed the need to anchor inflation expectations and highlighted the SBP’s success in maintaining positive real interest rates.
According to the IMF, the current tight monetary stance has been crucial in curbing inflation and should be sustained to ensure price stability and bolster the country’s external reserves. Analysts concur, noting that the SBP’s preference for positive real interest rates will likely contribute to a cautious approach.
The SBP has held its policy rate steady at 11% as September.Prior to that, the central bank implemented aggressive easing, reducing rates by a cumulative 1,100 basis points between June 2024 and may 2025 as inflation plummeted from peaks near 40% in 2023.
External Pressures and Rupee Stability
Recent months have seen a slight acceleration in inflation, driven by rising costs for food and transportation, coupled with the fading of previous base effects. While headline inflation eased to 6.1% in November, down from 6.2% in October,it remains above the SBP’s target range of 5-7%.the IMF projects a temporary increase in inflation to 8-10% this fiscal year before it stabilizes.
Despite some stabilization in Pakistan’s macroeconomic backdrop, analysts caution that the recovery remains vulnerable to external shocks. one analyst noted that premature rate cuts could exert downward pressure on the Pakistani rupee, even with the anticipated disbursement of a $1.2 billion loan from the IMF this week, intended to strengthen reserves and support climate resilience initiatives.
