Pakistan Central Bank Set to Maintain Interest Rates at 11%

The State Bank of Pakistan (SBP) is anticipated to keep its interest rates unchanged at 11 percent during the upcoming policy meeting on December 12, 2023. This decision follows a survey conducted by Reuters, which indicated that analysts have shifted their expectations for rate cuts to late 2026. The International Monetary Fund (IMF) has raised concerns about persistent inflation risks, urging the central bank to maintain an “appropriately tight” monetary policy.

All 12 analysts surveyed predict no changes to the policy rate in the upcoming meeting. Most analysts foresee inflation stabilizing between 6 percent and 8 percent in the near future, before potentially increasing again towards the end of FY26, which concludes in June 2026. This anticipated rise is attributed to diminishing base effects and ongoing volatility in food and transportation prices, exacerbated by supply disruptions from recent flooding.

IMF’s Caution on Monetary Policy

The IMF’s second review, released on December 7, emphasized the necessity of keeping monetary policy “appropriately tight and data-dependent.” The organization noted the importance of maintaining positive real interest rates to anchor inflation expectations. The IMF highlighted that the current tight policy has played a crucial role in reducing inflation and should continue to support price stability while rebuilding external buffers.

Given these inflationary pressures, the SBP remains focused on sustaining a cautious approach. The central bank has held the policy rate at 11 percent since September 2023, having previously reduced it by 1,100 basis points between June 2024 and May 2025 in response to a significant decline in inflation from nearly 40 percent in 2023.

Inflation and Economic Recovery

Recent trends indicate that inflation is beginning to rise again after a period of decline. In November, headline inflation slightly decreased to 6.1 percent from 6.2 percent in October, yet it remains above the SBP’s target range of 5-7 percent. The IMF predicts that inflation may accelerate to between 8 percent and 10 percent during the current fiscal year before stabilizing.

While some stabilization in Pakistan’s macroeconomic backdrop has been observed, analysts warn that the recovery is still vulnerable to external pressures. Premature rate cuts could negatively affect the Pakistani rupee, even as the country anticipates receiving $1.2 billion in IMF disbursements this week. These funds aim to bolster reserves and support climate-resilience reforms, but any demand-driven increase in inflation could have adverse consequences for the external economy. As noted by Sana Tawfik, head of research at Arif Habib Ltd, “Any demand-driven uptick will have an adverse impact on the external front.”

In summary, the SBP’s decision to maintain the interest rate at 11 percent reflects a cautious approach in response to ongoing inflation concerns and external economic pressures. The balance between fostering economic recovery and ensuring price stability remains a critical challenge for policymakers in Pakistan.