Key Takeaways
- The State Bank of Pakistan’s Monetary Policy Committee (MPC) meets today to review the key policy rate.
- Analysts expect a 50bps hike, while PIDE advocates for maintaining the current rate.
- Recent macroeconomic data shows headline inflation at 11.1% y/y, up from 9.2% in July.
The State Bank of Pakistan’s Monetary Policy Committee (MPC) is set to convene today, Monday, for its third meeting of the fiscal year 2026-27, to review the key policy rate.
At its previous meeting on September 14, the MPC decided to keep the policy rate unchanged at 11.5%, in line with market expectations.
The MPC noted that the recent intensification of the Middle East conflict has led to a further increase in global commodity prices, while supply chain disruptions have persisted.
Despite these challenges, recent domestic macroeconomic data has largely met the MPC’s expectations. Headline inflation increased to 11.1% year-on-year (y/y) in August, from 9.2% in July.
Core inflation, however, was slightly lower than expected, according to the MPC’s statement.
A number of analysts predict that the SBP will hike interest rates in the upcoming meeting. Topline Securities, for instance, expects the policy rate to rise by 50 basis points (bps) to help mitigate prolonged inflationary and external shocks.
In a poll conducted by Topline Securities, 61% of market participants expect the policy rate to rise, with 54% believing a 50bps increase and 7% expecting a 100bps hike. Meanwhile, 39% expect the policy rate to remain unchanged.
Foundation Securities also expects a 50bps hike, stating that persistent above-target inflation driven by oil price volatility amid the Middle East conflict, rising inflation expectations, a thin real interest rate, and a pickup in growth argue for a measured, pre-emptive hike.
On the other hand, the Pakistan Institute of Development Economics (PIDE) urges the SBP to maintain the policy rate. PIDE’s assessment favours a conditional hold rather than pre-emptive tightening, given 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.
According to PIDE, available evidence does not yet demonstrate generalised demand overheating or sufficiently broad-based second-round inflation pressures.
We expect the MPC to raise the policy rate by 50bps to 12.0% at its meeting on Monday, 26 Oct'26.
Foundation Securities, Financial Analyst
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, Economic Research Institute
