By Moaaz Manzoor
The State Bank of Pakistan (SBP) is expected to keep interest rates steady at 11% during its upcoming meeting on October 27, 2025, despite inflation rising and trade imbalances widening.
The central bank’s cautious approach aims to balance growing inflation concerns with signs of economic recovery.
Inflation Rises, but Core Pressures Stay Contained
Headline inflation jumped to 5.6% in September 2025, up from 3.0% in August, mainly due to disruptions in food supplies caused by recent floods.
However, core inflation remained steady at 7.3%, indicating that underlying price pressures have not worsened drastically. This gives the SBP some breathing room to maintain its cautious approach to monetary policy.
Trade Deficit Worsens, But External Pressures Stay Controlled
The trade deficit increased significantly in September, widening to USD 3.4 billion. Exports fell 11.9% year-on-year, while imports rose 15.2% year-on-year.
Despite this, remittances helped cushion the blow, increasing by 1% year-on-year to USD 3.2 billion. The SBP expects the current account deficit to remain manageable, with a projected range of 0 to -1% of GDP.
Signs of Economic Revival in Domestic Manufacturing
On the positive side, domestic manufacturing showed growth, with large-scale manufacturing increasing by 9% in July 2025. Key sectors like textiles, food, and petroleum led the growth.
This suggests that the economy is gradually recovering, which makes maintaining policy consistency essential for sustaining this growth.
Strong Market Confidence Despite Inflation Concerns
Market participants, including banks, asset managers, and corporates, are largely expecting the SBP to keep the interest rate unchanged.
A pre-policy survey by Arif Habib Limited (AHL) revealed that 87.5% of respondents believe the rate will stay at 11%. Bond yields remained steady, showing investor confidence in the current economic stance.
IMF Agreement’s Impact on Policy Decisions
While the IMF staff-level agreement has been positive for Pakistan’s economy, Syed Zafar Abbas, a manager at Zahid Latif Khan Securities, believes that it won’t immediately affect the SBP’s policy.
He pointed out that with inflation risks still present and the recovery post-floods still slow, the SBP is likely to continue its cautious approach for now.
Author Profile
-
Moaaz Manzoor is a business correspondent who meticulously tracks Pakistan’s crucial but neglected natural resource industries.
He specializes in exposing inefficiencies and charting the course of modernization, highlighting how efforts to mechanize mining have dramatically cut marble and granite wastage, driving a recovery and attracting vital investment.
