Market expects status quo as MPC meets today

The State Bank of Pakistan (SBP) Monetary Policy Committee (MPC) is expected to meet today (Monday) for the second time this fiscal year, with a majority of market participants expecting a status quo. At its previous meeting on July 27, the central bank’s MPC, despite signs of improvement in Pakistan’s macroeconomic outlook, left the policy rate unchanged at 11. 5%, citing heightened external risks following the resurgence of conflict in the Middle East. “The MPC assessed that the current monetary policy stance remains appropriate to guide inflation towards the target range of 5-7% over the medium term, ” it said at the time. SBP maintains status quo, cites Middle East risks Earlier, a number of analysts had expected the SBP to maintain the status quo, as mounting inflationary pressures from elevated global oil prices could limit the scope for monetary easing. “We expect the SBP to keep the policy rate unchanged at 11. 5%, maintaining a balanced approach amid improving external buffers and renewed inflationary pressures, ” said Ismail Iqbal Securities. “While forward inflation is expected to remain in single digits on average, intensifying energy price pressures and regional uncertainty could sustain upside risks to the inflation outlook, warranting a cautious stance, ” it added. Similarly, in a poll conducted by Topline Securities, 84% of respondents expect the policy rate to remain unchanged. Meanwhile, 14% expect the policy rate to rise by 50bps, and 2% expect the policy rate to rise by 100bps. Market participants’ expectations are largely driven by annual inflation expectations, which, at current oil prices of $95 per barrel, remain largely below 9% (FY27 avg), suggesting a positive real spread of over 250bps, in line with historic real rates. Furthermore, improving reserves and a contained current account balance are also augmenting the status quo view of participants. Analysts at Topline also expect the SBP to maintain the policy rate at 11. 5% mainly due to sufficient real spread and improving external outlook, especially after the recent $3 billion Eurobond launch. However, if oil prices and food inflation remain sticky, this could also warrant a rate hike of 50-100bps in upcoming MPC meetings, particularly in October or December 2026. Another brokerage house, JS Global, also expects the MPC to hold the policy rate at 11. 5%. “However, if geopolitical tensions persist into the December quarter, the next move would be an increase, ” said JS Global. “This risk is increasingly credible, with one-third of respondents in our recent survey expecting a hike by Dec-26, ” the brokerage house added.

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