MediumIV Macro Policy & Sovereign Debt25 October 2026, Sunday
Pakistan's central bank braces for a rate hike as stocks drop 2.4%
The Monetary Policy Committee of the State Bank of Pakistan (SBP) meets on 26 October, with the policy rate held at 11.5% for 3 meetings. In a Topline Securities poll, 61% of respondents expect a hike, while the KSE-100 index ended the week down 2.4%.
According to a Nukta round-up dated 25 October, the SBP has kept rates on hold for 3 meetings since a 100 basis point hike in April. In the Topline poll, 54% of respondents expect a 50 basis point increase and 7% a 100 basis point move; 39% see no change. Topline and Foundation Securities forecast a rise to 12%. Dawn quotes Tresmark chief executive Faisal Mamsa as calling 50 basis points a reasonable middle ground and 100 basis points too heavy for the government's borrowing costs.
Inflation drives the expectation of a hike. Headline inflation reached 10.3% year on year in September, above the SBP's 5–7% target band. Dawn reports that CPI averaged 10.2% in the first quarter of fiscal 2027, compared with 4.3% a year earlier. Foundation Securities estimates that a real rate of about 1.2% in September would rise to 2.5% with a 50 basis point hike. The current account deficit widened to 874 million dollars in the first quarter, and SBP reserves stood at 21.5 billion dollars in mid-October.
Dawn's weekly market review shows the KSE-100 losing 4,045 points over the week to 162,375, with banks leading the decline at 925 points. Brent rose 6.4% on the week to 114.9 dollars a barrel on Friday, according to Dawn. AKD Securities cited Houthi attacks on Saudi Arabia and a possible US strike on Iran. Dawn adds that the Korangi and SITE industry associations want the 11.5% rate cut to single digits.
Talay assessment
Bottom line
With the oil bill pushing inflation to twice the target, the SBP has to rebuild a clearly positive real rate. The 61% poll expectation and the 50 basis point consensus are largely priced in. The most likely path is a rise to 12% and a downgrade of the growth target.
Likely effects
- Government borrowingNegativeWeeks
A 50 basis point hike lifts the six-month bill yield, already trading above 12%, and adds to the interest burden on domestic debt.
- RupeePositive1–6 months
A positive real rate and 21.5 billion dollars in reserves give the rupee a limited buffer against the oil shock.
- GrowthNegative1–6 months
Optimus Capital says growth could slip from the 4% target to about 3.6% if risks mount; tightening squeezes industrial credit.
Possibilities, ranked
- 150 basis point hike55%
The SBP raises the rate to 12% and adopts data-dependent language tied to oil prices.
Watch: The SBP monetary policy statement on 26 October
- 2Rate on hold30%
Worried about growth, the SBP stays at 11.5% and waits for October inflation to ease to 9.4–9.5%.
Watch: October CPI coming in below 9.5%
- 3100 basis point hike15%
The oil shock and the current account deficit push the SBP into a sharper increase.
Watch: Brent holding above 115 dollars and a steep fall in the rupee
Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.
Market reaction
Indicators affected
- Policy rate▼ 11.5%
- KSE-100 weekly▼ −2.4%
- September inflation▼ 10.3%