Pakistan’s central bank is expected to keep interest rates unchanged at 11 percent as inflation risks and IMF guidance push policymakers toward caution.
Pakistan’s monetary policy is expected to remain steady as the State Bank of Pakistan is likely to hold its key interest rate at 11 percent, according to a Reuters poll of analysts. The decision reflects growing concerns about inflation risks and external economic pressures, reinforced by recent guidance from the International Monetary Fund.
With inflation showing signs of stabilisation but still facing upward risks, policymakers appear reluctant to begin easing too soon.
Analysts Expect Status Quo on Interest Rates
All analysts surveyed in the Reuters poll anticipate that the State Bank of Pakistan will maintain its current policy rate. The central bank has kept rates unchanged since September after a prolonged easing cycle that saw significant reductions between mid 2024 and mid 2025.
During that period, interest rates were cut sharply as inflation declined from extremely high levels. However, the current environment suggests that further easing may not be imminent.
Most analysts now expect that any rate cuts will be delayed until the later part of fiscal year 2026 or even into fiscal year 2027, reflecting a more cautious outlook.
IMF Calls for Tight Monetary Policy
The International Monetary Fund has advised Pakistan to maintain a tight and data dependent monetary policy stance. According to the IMF, such an approach is essential to keep inflation expectations under control and ensure long term price stability.
The IMF has also noted that maintaining positive real interest rates has been a key factor in reducing inflation. This policy stance is expected to continue as authorities aim to rebuild external financial buffers and strengthen economic resilience.
The guidance from the IMF plays a significant role in shaping Pakistan’s monetary policy decisions, particularly given the country’s reliance on external financial support.
Inflation Outlook Remains Uncertain
Although inflation has declined significantly from its peak levels in 2023, recent data indicates that price pressures are beginning to reemerge. Headline inflation has remained above the central bank’s target range, driven by increases in food and transport costs.
Analysts expect inflation to remain in the range of 6 to 8 percent in the near term, with the possibility of rising further toward the end of fiscal 2026 as base effects diminish.
The IMF has projected that inflation could temporarily increase to between 8 and 10 percent before stabilising, highlighting the need for continued vigilance.
External Pressures Limit Policy Flexibility
Pakistan’s economic recovery remains sensitive to external factors, including currency stability and global market conditions. The Pakistani rupee continues to face pressure, limiting the central bank’s ability to lower interest rates without risking further depreciation.
A premature rate cut could weaken the currency and increase external vulnerabilities, particularly in the context of ongoing global uncertainties.
Analysts also point to the importance of maintaining investor confidence, which could be affected by any sudden changes in monetary policy.
Role of IMF Support and Financial Stability
Pakistan is expected to receive financial support from the IMF, including a planned disbursement aimed at strengthening foreign exchange reserves and supporting economic reforms.
While this inflow provides some relief, it does not eliminate the need for cautious policy decisions. Maintaining a stable macroeconomic environment remains a priority for policymakers.
The IMF’s involvement underscores the importance of disciplined economic management and adherence to agreed policy frameworks.
Impact of Previous Rate Cuts
The State Bank of Pakistan had previously implemented significant rate cuts as inflation declined sharply. These measures were aimed at supporting economic growth and easing financial conditions.
However, the current situation suggests that the benefits of those cuts are being balanced against the need to prevent inflation from rising again.
Policymakers are now focused on maintaining stability rather than stimulating growth through further easing.
Market Expectations and Investor Sentiment
Financial markets are closely watching the central bank’s decision, as it will provide important signals about the future direction of monetary policy.
A decision to hold rates is likely to reinforce the perception of a cautious and disciplined approach, which could support investor confidence.
At the same time, delays in rate cuts may affect borrowing costs and economic activity, creating a complex balance for policymakers.
Risks from Supply Disruptions
Recent supply disruptions, including those linked to flooding, have contributed to volatility in food prices. These factors add another layer of uncertainty to the inflation outlook.
Transport costs have also remained elevated, further contributing to price pressures. These developments highlight the challenges faced by policymakers in managing inflation in a dynamic environment.
Long Term Policy Outlook
Looking ahead, the central bank is expected to continue monitoring economic indicators closely before making any changes to interest rates. Data on inflation, currency stability, and external balances will play a key role in shaping future decisions.
Analysts believe that a gradual and carefully timed approach to easing will be necessary to ensure sustainable economic recovery.
The focus is likely to remain on maintaining stability while preparing for eventual policy adjustments when conditions allow.
Conclusion
The expected decision by the State Bank of Pakistan to hold interest rates at 11 percent reflects a cautious approach in the face of ongoing inflation risks and external pressures.
With guidance from the International Monetary Fund emphasizing the need for tight policy, the central bank appears committed to maintaining stability rather than pursuing immediate easing.
As Pakistan navigates a complex economic landscape, the balance between controlling inflation and supporting growth will remain a key challenge in the months ahead.
