As the end of the year approaches, observers of Pakistan’s financial markets and the ongoing IMF-backed economic program do not expect any change in policy rates. The next policy decision is expected to leave the base interest rate unchanged at 11%.
About 70% of market participants believe the SBP will keep interest rates unchanged at its December 15, 2025 meeting, according to a recent survey by brokerage firm Topline Securities. Among other respondents, no one expected a rate hike, but a minority expected a modest rate cut of between 25 and 100 basis points.
Reasons for cancellation: inflation, flooding, external pressure
There are several reasons for this widespread expectation of “the status quo.” First, the economy continues to face inflationary pressures and commodity price fluctuations. Recent floods and supply chain disruptions have heightened risks to food prices and undermined calls for aggressive monetary easing. Second, the SBP has already slashed interest rates from a high of 22% to 11% over the past 18 months.
Many analysts say that inflation-adjusted real interest rates remain sufficiently positive to give the SBP a chance to breathe. Third, vulnerabilities in the external sector, such as widening trade deficits and rising import demand, also influence monetary policy decisions. Cutting interest rates too soon could reignite import pressures and complicate the external balance.
What does this mean for borrowers, investors, and the economy as a whole?
Borrowers, including individuals and businesses, may need to remain cautious. Maintaining interest rates would mean funding costs would remain relatively high, potentially discouraging new borrowing, but also potentially stabilizing the terms of existing loans. Investors and markets benefit from certainty. Broad expectations regarding position holding allow the market to avoid extreme volatility. Indeed, fixed income products such as Treasury bills and interbank rates are already showing signs of stabilization. From an economic policy perspective, the suspension suggests that the SBP (and by extension the IMF’s supervisory structure) is prioritizing macroeconomic stability and inflation control over aggressive rate cuts that would foster growth, perhaps due to global and domestic uncertainties (e.g., flood impacts, import pressures, food price risks).
What can we see in the future?
Inflation trajectory: If food and energy prices rise sharply, we will be more likely to maintain inflation at 11%. Conversely, if prices stabilize or fall, there may be pressure to lower interest rates.
Developments in the external sector: import trends, export performance, remittances, and capital inflows are all important. As the situation worsens, SBP may remain cautious. A stable or improving balance sheet could ease pressure on interest rates to rise.
IMF Policy Signals: As Pakistan continues to participate in IMF-supported programs, any guidance or conditions arising from the IMF review may influence SBP decisions. Overall, market expectations to keep interest rates at 11% reflect policymakers’ cautious, stability-oriented stance, as suggested by observers of the current IMF program. Keeping interest rates stable seems the prudent course at this time, given the continuing risks associated with inflation, flooding, external balances, and economic uncertainty.
