Markets expect the central bank to hold rates at 11.5% as stronger domestic fundamentals offset external risks from rising oil prices
KARACHI: The State Bank of Pakistan (SBP) is widely expected to leave its benchmark policy rate unchanged at 11.5% when it announces its latest monetary policy on July 27, 2026, despite mounting geopolitical tensions and a sharp rise in global oil prices.
The policy decision comes amid heightened uncertainty in the global economy following the collapse of the ceasefire between the United States and Iran. Renewed tensions in the Middle East have driven Brent crude oil prices close to $100 per barrel, their highest level in six weeks, as fears of supply disruptions through the Strait have intensified.
Although higher oil prices pose a significant challenge for Pakistan as a net energy importer, economists believe the SBP will place greater emphasis on the country’s improving macroeconomic fundamentals than on short-term geopolitical developments.
Markets expect policy rate to remain unchanged
Financial markets broadly expect the central bank to maintain the policy rate at 11.5%, arguing that recent improvements in inflation, economic growth and the external sector justify policy continuity despite increasing global risks.
Analysts say the current monetary stance strikes a balance between containing inflation and supporting Pakistan’s economic recovery.
Inflation outlook continues to improve
Pakistan’s inflation trajectory has eased markedly over the past year.
Headline inflation averaged 7.05% during FY2025-26, remaining broadly within the SBP’s medium-term target range of 5% to 7%.
The latest inflation data also points to moderating price pressures. Consumer inflation slowed to 11.1% year-on-year in June 2026, down from 11.7% in May, although elevated energy and transport costs continue to keep overall inflation above the central bank’s preferred range.
Economic recovery gathers pace
Pakistan’s economy has continued to strengthen, providing policymakers with greater confidence in maintaining the current monetary stance.
The country recorded provisional GDP growth of 3.7% in FY2025-26, the fastest expansion in four years, suggesting that tighter monetary policy has helped restore macroeconomic stability without significantly constraining economic activity.
The stronger growth outlook has reinforced expectations that the SBP will refrain from making any immediate policy adjustments.
External sector remains resilient
Pakistan’s external accounts have shown notable improvement despite challenging global conditions.
Although imports increased by nearly 8.5% during FY2025-26 and international oil prices remained volatile, the country recorded a current account deficit of only $139 million for the fiscal year.
While June 2026 posted a monthly deficit of $649 million, the overall external position remained manageable, supported by record workers’ remittances exceeding $41.5 billion and foreign exchange reserves rising above $18.5 billion, compared with around $14.5 billion a year earlier.
Meanwhile, the Pakistani rupee has remained broadly stable throughout July, trading within a narrow band of Rs278–279 per US dollar, reflecting improved investor confidence in the country’s external stability.
Bond market signals support a hold
Fixed-income markets have delivered mixed signals ahead of the policy announcement.
Cut-off yields in the latest Treasury bill auction increased for shorter maturities, while yields on three-year, five-year and ten-year Pakistan Investment Bonds (PIBs) declined compared with the previous auction. Secondary market yields have also eased since mid-June, indicating that investors largely expect no immediate change in the benchmark rate.
An AHL market survey found that 94% of respondents expect the SBP to keep the policy rate unchanged at 11.5%, while only 6% anticipate a 50-basis-point increase.
Geopolitical risks remain the key uncertainty
Despite strengthening domestic economic indicators, policymakers are expected to remain vigilant as geopolitical tensions continue to threaten the inflation outlook through higher energy prices.
Analysts believe the SBP is likely to maintain the policy rate at 11.5% on July 27, while closely monitoring developments in global oil markets and regional geopolitics before considering any future adjustments to monetary policy.