SBP Likely to Maintain Policy Rate at 11% Amid Cautious Economic Outlook: Survey

The State Bank of Pakistan (SBP) is expected to keep the policy rate unchanged at 11% in its upcoming monetary policy meeting on September 15, 2025, according to a survey conducted by Arif Habib Limited (AHL). The survey revealed that 92.3% of respondents anticipate no change in the policy rate, while only 7.7% foresee a 50 basis points (bps) cut. The decision to maintain the policy rate reflects a cautious approach amid mixed economic signals. While headline inflation eased to 3.0% in August 2025 from 4.1% in July, core inflation remains steady at 7.3%. However, average inflation for FY26 is projected to exceed 7%, surpassing the SBP’s medium-term target of 5-7%. This upward revision is attributed to food inflation risks stemming from flood-induced supply disruptions, with recent data showing double-digit month-on-month price spikes in essential commodities like wheat, tomatoes, and onions. Pakistan’s current account deficit narrowed to $254 million in July 2025, compared to $348 million in the same month last year. The Pakistani Rupee appreciated by 0.7% in FYTD, while S&P upgraded Pakistan’s credit rating to B- (Stable). However, external pressures may resurface as imports pick up, particularly in agriculture and cotton, to offset flood-related damages. Large-scale manufacturing (LSM) output showed a 4.1% year-on-year increase in June 2025, though it contracted slightly on a monthly basis. For FY25, LSM recorded a minor annual contraction of 0.7%. Analysts expect industrial activity to gain momentum as macroeconomic indicators stabilize and post-flood rehabilitation efforts support growth. The bond market remains steady, with yields largely unchanged since the last monetary policy statement. Short-term T-bill yields rose by 15bps, while the 10-year Pakistan Investment Bond (PIB) yield edged down by 16bps. The AHL survey highlights overwhelming market consensus for a status quo policy stance, driven by concerns over fiscal pressures, inflationary risks, and external stability. Analysts believe the SBP’s cautious approach is warranted to mitigate risks of current account slippage and ensure economic stability.