KARACHI – State Bank of Pakistan has kept its policy rate unchanged at 11.5%, opting for caution as improving economic conditions clash with a fresh threat from rising global oil prices.
The decision was taken by the Monetary Policy Committee (MPC) at its second meeting of fiscal year 2026-27 and sixth meeting of the calendar year. For now, borrowers and businesses will see no change in the benchmark cost of borrowing. The decision also came largely as expected, with markets already leaning towards a rate hold.
Pakistan has made some progress on the external front. Foreign exchange reserves have strengthened, the current account remains relatively manageable and the country has raised $3 billion through a Eurobond, easing some pressure on its external financing position. But the improvement comes with a warning sign.
Global oil prices have moved close to $95 per barrel, raising the prospect of higher fuel costs at home. If the increase persists, it could ripple through transport, food and other consumer prices. That possibility is giving the central bank little reason to rush into monetary easing.
SBP’s latest move was hardly unexpected. A Topline Securities survey showed that 84% of respondents were betting on an unchanged policy rate of 11.5%. Meanwhile, 14% expected a 50-basis-point hike, while just 2% predicted a 100-basis-point increase.
Ismail Iqbal Securities had also expected the SBP to stay put, pointing to the delicate balance between stronger external buffers and renewed inflationary pressures.
Average inflation is projected to remain below 9% in FY27, while the current policy rate still leaves a real interest rate margin of more than 250 basis points.
Oil Crisis
The biggest uncertainty now sits outside Pakistan. Oil prices have been pushed higher amid continuing tensions in the Middle East, creating another potential inflation shock for economies that rely heavily on imported energy.
The issue was already on the SBP’s radar at its July 27 meeting, when the MPC retained the rate at 11.5% and flagged increased external risks linked to renewed regional conflict.
The central bank has maintained that its current stance remains suitable for gradually bringing inflation towards its medium-term target of 5% to 7%.
But keeping that trajectory intact could become harder if energy prices remain elevated.
For now, the SBP has kept the door open. If expensive oil persists and food inflation proves difficult to contain, pressure could build for a 50 to 100 basis point increase at a future meeting. That puts the October and December 2026 MPC meetings firmly on the market’s radar.
JS Global is also expecting the central bank to hold for the time being, but warns that prolonged geopolitical tensions could eventually force a change in direction.
