The State Bank of Pakistan (SBP) is widely expected to maintain its benchmark policy rate at 11% during its upcoming monetary policy meeting scheduled for December 15, 2025, as analysts anticipate a cautious and data-driven approach amid rising inflationary pressures and a gradual domestic economic recovery. Market participants and research houses largely agree that the central bank is unlikely to announce any immediate policy easing despite improving growth indicators.
According to analysts, the SBP’s decision is expected to reflect concerns over fading base effects that had previously kept headline inflation at relatively low levels. With inflation gradually trending upward and early signs of recovery emerging in key economic sectors, policymakers appear inclined to prioritise macroeconomic stability over aggressive growth support. The slight widening of the current account deficit and increased import activity further reinforce expectations of a steady policy stance.
Headline inflation has risen steadily in recent months, increasing from 4.1% in July 2025 to 6.1% in November 2025. Analysts attribute much of this rise to flood-related disruptions in food supply chains, which have exerted upward pressure on prices. While the five-month average inflation for FY26 remains contained at around 5%, core inflation continues to hover at elevated levels near 7.4%, indicating underlying price rigidity within the economy.
Research houses warn that inflation could temporarily move into double-digit territory during the second half of the fiscal year, particularly due to seasonal demand pressures linked to Ramadan and Eid. Despite these near-term risks, full-year inflation for FY26 is expected to remain within the SBP’s medium-term target band of 5–7%, provided no major external or domestic shocks materialise.
On the external front, the Pakistani rupee has appreciated by approximately 1.2% on a year-to-date basis, supported by improved foreign inflows, recent credit rating upgrades, and continued engagement under the International Monetary Fund (IMF) programme. However, analysts caution that rising import demand and a widening trade deficit could create renewed pressure on the external account in the coming months.
Data released by the Pakistan Bureau of Statistics shows that the country’s trade deficit widened to USD 2.9 billion in November 2025, reflecting a 32.8% year-on-year increase. Exports declined by 15.4%, while imports rose by 5.4% during the same period. Remittances offered some offset, increasing 9% year-on-year to USD 3.2 billion, providing temporary relief to the balance of payments.
Domestically, economic indicators suggest a slow but steady recovery is underway. Large-scale manufacturing recorded growth of 4.1% year-on-year during the first quarter of FY26, led by improvements in the textile, food, and petroleum sectors. Analysts note that maintaining policy consistency remains essential to sustain this recovery, even as calls for monetary easing grow louder from segments of the business community.
Bond market behaviour also points toward expectations of an unchanged policy rate, with yields remaining largely stable across various tenors. Analysts surveyed ahead of the meeting forecast inflation to remain in the 6–8% range in the near term before rising toward the latter part of FY26. Most expect the SBP to consider its first rate cut only toward the end of FY26 or potentially in FY27.
The IMF has also cautioned against premature easing, emphasising in its second programme review that monetary policy should remain appropriately tight and data-dependent. The Fund highlighted that positive real interest rates have played a critical role in bringing inflation down from previously elevated levels and in supporting external sector stability.
Since September 2025, the SBP has kept the policy rate unchanged at 11% following a cumulative 1,100 basis point reduction between June 2024 and May 2025, when inflation eased sharply from nearly 40% in 2023. Analysts warn that any premature policy easing could place renewed pressure on the rupee, even as Pakistan anticipates IMF inflows, including a USD 1.2 billion disbursement expected to support foreign exchange reserves and climate-resilience reforms.
Sana Tawfik, Head of Research at Arif Habib Limited, noted that any demand-driven resurgence in inflation could negatively impact the external sector, reinforcing the need for a cautious and measured monetary policy approach.
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