The State Bank of Pakistan (SBP) is likely to keep the policy rate unchanged at 11 percent in its upcoming meeting on December 15, according to a report by Arif Habib Limited (AHL).

Inflation Shows Upward Trend

Inflation has started to rise again. It increased from 4.1% in July 2025 to 6.1% in November 2025. The rise is mainly due to flood-related food supply disruptions. Analysts expect inflation to gain momentum during Ramadan and Eid in the second half of FY26.

Although monthly inflation could temporarily touch double digits, the yearly average is expected to stay within SBP’s medium-term target of 5–7%.

External Pressures on PKR

The Pakistani rupee has appreciated 1.2% this fiscal year. Strong remittances and progress under the IMF program supported the currency. However, the trade deficit widened to USD 2.9 billion in November 2025, a 32.8% increase year-on-year. Imports rose while exports declined.

Over the first five months of FY26, the trade deficit expanded 37.2% YoY to USD 15.5 billion. Remittances provided relief, rising 9% YoY to USD 3.2 billion in November.

Economic Recovery Signs

Large-scale manufacturing grew 4.1% YoY in the first quarter of FY26. This indicates early signs of economic recovery. Yet, the SBP is expected to wait for more stability before considering rate cuts.

Market Expectations

Bond market trends suggest an unchanged policy stance. Yields remain stable across short and long tenors. AHL’s survey of banks, asset managers, insurers, and corporates shows 71.6% expect no change. Meanwhile, 28.4% anticipate a 50-bps cut.

Conclusion

Overall, the SBP is likely to maintain a cautious approach. Rising inflation and external pressures require careful monitoring. Investors and businesses should watch upcoming developments closely.

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