SBP to Hold 11% Rate Amid Rising Inflation, Trade Gap

KARACHI: The State Bank of Pakistan (SBP) is poised to maintain its policy rate at 11% during the October 2025 monetary policy meeting, according to a market preview by Arif Habib Limited (AHL). This decision looms amidst surging inflation, a widening trade deficit, and Pakistan’s nascent economic recovery.

AHL highlighted that headline inflation spiked from 3.0% in August to 5.6% in September 2025, driven by flood-related disruptions to food supplies. Consequently, FY26 inflation is projected to exceed 7%, surpassing the SBP’s 5–7% target. However, core inflation held steady at 7.3%, signaling contained underlying price pressures.

On the external front, AHL noted a 0.9% appreciation of the Pakistani rupee in FY26, bolstered by robust foreign inflows, enhanced credit ratings, and steady IMF program progress. Yet, it cautioned that pressures could resurface as trade flows shift in coming months.

Citing Pakistan Bureau of Statistics (PBS) data, AHL reported a trade deficit of USD 3.4 billion in September 2025, with exports dropping 11.9% year-on-year to USD 2.5 billion and imports rising 15.2% year-on-year to USD 5.9 billion. Month-on-month, exports grew 3.4%, while imports surged 11.6%.

For Q1 FY26, the trade deficit ballooned 33.8% year-on-year to USD 9.4 billion, hinting at a potential rise in the current account deficit for September. Remittance inflows offered some respite, reaching USD 3.2 billion in September 2025, up 1% from last year.

Despite the trade gap, AHL projects the full-year current account to remain manageable at 0 to -1% of GDP, aligning with SBP forecasts. However, it urged vigilant monitoring as import demand normalizes.