SBP likely to raise policy rate by 50 bps

KARACHI: The State Bank of Pakistan (SBP) is expected to raise its policy rate by 50 basis points to 12 percent at its upcoming Monetary Policy Committee (MPC) meeting on October 26, 2026, as rising oil and food prices fuel inflationary pressures and increase risks to the economic outlook, according to Topline Research.

In its latest assessment, Topline Research said continued uncertainty surrounding the global geopolitical situation and its potential impact on energy supply chains could prompt the central bank to tighten monetary policy to mitigate prolonged inflationary and external shocks.

The SBP kept its policy rate unchanged at 11.5 percent at its previous MPC meeting held on September 14, 2026, in line with market expectations.

According to a poll conducted by Topline Securities among market participants, 61 percent of respondents expect an increase in the policy rate at the October 26 meeting. Of these, 54 percent anticipate a 50-basis-point hike, while seven percent expect an increase of 100 basis points. The remaining 39 percent expect the central bank to maintain the rate at 11.5 percent.

Topline Research attributed the market’s expectations largely to rising inflation concerns amid elevated international oil prices and higher food prices. Wheat prices have increased by nine percent over the past four weeks, adding to inflationary pressures.

Assuming Brent crude oil prices remain around $100 per barrel, Topline Research expects average headline inflation to range between 9 and 9.5 percent in FY27. It also projects average inflation above 8.5 percent over the next 12 months, exceeding the SBP’s medium-term inflation target range of 5 to 7 percent.

The research house believes that elevated oil prices, a real effective exchange rate (REER) of 107 to 108, and the possibility of renewed geopolitical escalation warrant maintaining a higher real interest rate than in previous periods.

Despite comfortable external buffers, Topline Research expects the SBP to increase the policy rate by 50 basis points, citing the growing risks posed by higher energy and food prices.

Financial markets have also started pricing in a potential rate hike. The six-month Treasury bill yield stands at 12.24 percent, compared with the prevailing policy rate of 11.5 percent, while the six-month Karachi Interbank Offered Rate (KIBOR) is at 12.43 percent.

Regarding the policy rate outlook for June 2027, 56 percent of respondents expect the rate to exceed 11.5 percent, while 22 percent anticipate a decline below that level. The remaining 22 percent expect the rate to remain unchanged.

Topline Research expects the policy rate to remain at 12 percent through June 2027 following the anticipated 50-basis-point increase. However, it noted that an early reduction could become possible if international oil prices fall below $80 per barrel.

Market participants remain divided over the inflation outlook for FY27. According to the survey, 44 percent expect average inflation to range between 9 and 10 percent, while 27 percent anticipate inflation above 10 percent. Another 22 percent expect inflation to remain between 8 and 9 percent.

On the exchange rate, respondents largely expect the Pakistani rupee to remain relatively stable through June 2027. Around 44 percent anticipate the dollar trading between Rs280 and Rs285, while 41 percent expect it to remain in the Rs275 to Rs280 range. Another 12 percent foresee the exchange rate reaching Rs285 to Rs290, while two percent expect the rupee to weaken beyond Rs290 per dollar.

Topline Research also expects the rupee-dollar parity to remain within the Rs280 to Rs285 range by June 2027.