Hike or hold: SBP to announce policy rate today

The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) is scheduled to meet today, i.e. Monday, in its third meeting of the fiscal year 2026-27, to review the key policy rate.

At its previous meeting on September 14, the central bank’s MPC, in line with market expectations, decided to keep the policy rate unchanged at 11.5%.

“The Committee noted that the recent intensification of the prolonged Middle East conflict has led to further increase in already elevated global commodity prices, while supply chain disruptions have persisted,” read the MPC statement.

“However, recent domestic macroeconomic data turned out broadly in line with the MPC’s expectations. Headline inflation increased to 11.1% y/y in August from 9.2% in July, while core inflation was slightly lower than expectations.”

A number of analysts expect the SBP to hike interest rates in the upcoming meeting.

“Given continuing uncertainty over the global geopolitical situation and its impact on the global energy supply chain, we expect SBP to raise the policy rate by 50bps to help mitigate any prolonged inflationary and external shock,” said Topline Securities.

Similarly, in a poll conducted by Topline Securities of market participants, 61% of respondents expect the policy rate to rise at today’s MPC meeting. Of these, 54% believe a 50bps rise, whereas 7% believe a 100bps increase. Meanwhile, a sizable 39% expect the policy rate to remain unchanged.

According to Topline, at the current level of oil prices, i.e. $100 Brent, the brokerage house expects headline inflation for FY27 to average 9-9.5%, leaving a real rate of 200-250bps at the current policy rate of 11.5%.

Similarly, Foundation Securities also expected a 50bps hike by the MPC.

“We expect the MPC to raise the policy rate by 50bps to 12.0% at its meeting on Monday, 26 Oct’26.

“In our view, though, persistent above-target inflation driven by oil price volatility amid war in the Middle East, rising inflation expectations, a thin real interest rate and a pickup in growth argue for a measured, pre-emptive hike.

“A 50bps hike would lift the ex-post real interest rate to ~2.5% on our Oct’26 inflation estimate, from ~1.2% in Sep’26,” it said.

On the other hand, the Pakistan Institute of Development Economics (PIDE) urged the SBP to maintain the policy rate.

“While the balance of risks has shifted toward tightening, current macroeconomic conditions do not yet establish a compelling case for an immediate rate increase,” PIDE said.

It noted that Pakistan’s inflation outlook remains challenging but mixed.

“Headline inflation moderated to 10.26% in September, while non-food non-energy inflation also eased. However, elevated trimmed-mean inflation, weekly price pressures, and rising household inflation concerns warrant continued vigilance. Importantly, available evidence does not yet demonstrate generalised demand overheating or sufficiently broad-based second-round inflation pressures,” it said.

“PIDE’s assessment therefore favours a conditional hold rather than pre-emptive tightening,” it said.