SBP seen holding policy rates as inflation rises post-floods

The State Bank of Pakistan (SBP) is expected to maintain status quo in its upcoming Monetary Policy Committee (MPC) scheduled to be held on October 27, 2025, owing to recent floods leading to inflation, a brokerage house survey stated.

“A significant majority of respondents (87.5%) expect the SBP to keep the policy rate unchanged, while 12.5% expect a 50bps cut,” said Arif Habib Limited (AHL) in its report.

AHL also expects the SBP to keep the policy rate unchanged at 11%, “mainly due to the recent rise in inflation, a marginal widening current account deficit, and the early stage of domestic recovery”.

In its previous meeting, the MPC decided to keep the policy rate unchanged at 11%, citing the adverse impact of recent floods on the near-term macroeconomic outlook.

Earlier, Governor SBP Jameel Ahmad, in an interview with Bloomberg, said that further policy rate cuts will be determined by the economic fallout from recent floods.

Meanwhile, AHL noted that the headline inflation increased from 3.0% in Aug’25 to 5.6% in Sept’25, largely because of flood-related food supply disruptions, pushing the FY26 average projection slightly above 7%, just beyond the SBP’s 5–7% target range.

“Although core inflation remained steady at 7.3%, suggesting contained underlying pressures, the overall outlook supports a cautious approach,” it said.

Meanwhile, on the external front, conditions remain broadly stable but call for close monitoring.

AHL noted that economic momentum is slowly gaining pace, with large-scale manufacturing growing by 9% YoY in July. “The steady pickup in industrial activity highlights the importance of maintaining policy consistency to preserve business sentiment and sustain growth,” it said.

However, while a rate cut could further support this recovery, the SBP may prefer to defer any easing for now, “allowing stability itself to nurture the ongoing momentum in the real sector”.

The bond market also signals an unchanged policy stance, with yields largely stable across the curve, it noted.

Similarly, Topline Securities, another brokerage house, also expect the central bank to maintain status quo in upcoming meet owing to higher inflation pattern emanating from recent floods and rising import levels.

“We expect the central bank to maintain status quo on interest rate front in FY26 as during 2HFY26, the inflation numbers in last few months (Apr May and Jun) might cross 8- 9% before reverting to normalized range of 6-7%.

“Furthermore, non-oil import numbers are also on a rising trajectory despite higher interest rates of 11% and real rate of over 500- 600bps. This signals SBP might continue with a status quo approach,” Topline said.

In a poll conducted by Topline Securities, 85% of the market participant expect policy rate to remain unchanged compared to 72% in last poll. While 15% are expecting a cut of 25bps and above. Within this, 5% are expecting 25bps cut, and 10% are expecting 50bps cut, it added.