Pakistan’s banking sector experienced another notable adjustment in October 2025 as the average return on bank deposits fell to 5.10 percent, down 18 basis points from 5.28 percent recorded in September. The latest official data reflects a continued recalibration across the financial system as interest rates respond to shifting inflation trends and monetary policy measures. The decline marks a significant annual change as well, with the weighted average deposit rate dropping sharply from 16.04 percent in October 2024, representing a steep contraction of 1,094 basis points over the year.
Despite the declining nominal return, the broader interest-rate landscape reveals that real deposit rates have turned positive for three consecutive months. This movement marks a substantial shift from last year’s deeply negative levels, where inflation outpaced deposit earnings and undermined savings value. In October 2024, the real deposit rate stood at -6.39 percent, reflecting the high-inflation environment that eroded depositor purchasing power. By contrast, October 2025 recorded a real deposit rate of 1.82 percent, slightly lower than September’s 1.94 percent but still firmly in positive territory.
This transition to positive real returns is viewed by analysts as a meaningful improvement for savers. It suggests that depositors are once again experiencing financial protection instead of loss through inflationary pressures. Rising real returns may influence deposit behaviors, encourage greater formal savings, and support liquidity in the banking system at a time when economic stability remains a key policy focus.
On the lending side, October saw the weighted average lending rate for scheduled banks settle at 11.69 percent. This rate reflects a decrease of 13 basis points from September’s average and a year-on-year drop of 366 basis points from October 2024. Although lending rates have eased compared to previous months, they remain considerably higher than the prevailing inflation rate, resulting in elevated real lending costs for businesses and consumers. The real lending rate has risen sharply from -1.39 percent in October 2024 to 8.41 percent in October 2025, with a slight increase from 8.34 percent recorded in September.
This persistent rise in real borrowing costs underscores the restrictive financial environment that continues to shape credit demand across the economy. Elevated real lending rates limit access to affordable financing, which can constrain business expansion, curtail investment activity, and slow down consumer-driven sectors. As a result, financial analysts highlight the need for cautious navigation, especially among borrowers sensitive to interest-rate movements.
Meanwhile, the banking sector spread widened marginally to 659 basis points in October, marking a 5-basis-point increase from the previous month’s spread of 654 basis points. The spread, which reflects the difference between lending and deposit rates, remains a critical indicator of bank profitability. The slight expansion suggests improving margins for banks despite the downward shift in both lending and deposit rates.
With inflation stabilizing and monetary policy maintaining a tight stance, Pakistan’s interest-rate environment continues to evolve. The shift toward positive real rates has sparked renewed confidence among savers, although credit conditions remain challenging for borrowers. As the financial sector adapts to these dynamics, upcoming months will be crucial in determining whether current trends support sustainable economic recovery or require policy adjustments to balance growth and stability.
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