Topline Securities’ poll shows 61% of market participants expect an interest rate hike on October 26, with rising oil and food prices fuelling inflation concerns.
KARACHI: The State Bank of Pakistan (SBP) may increase its policy rate by up to 100 basis points at its upcoming monetary policy meeting, according to a survey conducted by Topline Securities, as rising oil and food prices heighten inflationary risks.
The central bank is scheduled to hold its seventh Monetary Policy Committee (MPC) meeting of 2026 on October 26. At its previous meeting on September 14, the SBP maintained the policy rate at 11.5%, in line with market expectations.
According to Topline Securities’ poll, 61% of respondents expect an interest rate increase at the upcoming meeting. Of these, 54% anticipate a hike of 50 basis points, while 7% expect a sharper increase of 100 basis points. The remaining 39% believe the central bank will leave the policy rate unchanged.
Topline Research expects the SBP to raise the rate by 50 basis points to 12%, citing persistent uncertainty surrounding the global geopolitical situation and its potential impact on energy supplies, inflation and Pakistan’s external position.
The brokerage said expectations of higher interest rates were largely driven by rising inflation concerns amid elevated international oil prices and increasing food costs. Wheat prices have risen by 9% over the past four weeks, adding to domestic inflationary pressures.
Inflation outlook raises concerns
Assuming Brent crude oil prices remain around $100 per barrel, Topline Securities expects Pakistan’s average headline inflation to reach 9–9.5% in fiscal year 2026–27. This would leave the real interest rate at approximately 200–250 basis points if the policy rate remains at 11.5%.
Inflation over the next 12 months is also expected to average above 8.5%, exceeding the SBP’s medium-term inflation target of 5–7%, according to the research note.
Topline Securities argued that the economic environment may require real interest rates to remain within the historically observed range of around 200–250 basis points. It cited elevated oil prices, a real effective exchange rate (REER) of 107–108 and the possibility of renewed geopolitical escalation among the risks facing the economy.
Market yields have already reflected expectations of monetary tightening. The six-month Treasury bill yield is trading at 12.24%, compared with the current policy rate of 11.5%, while the six-month Karachi Interbank Offered Rate (KIBOR) stands at 12.43%.
Despite what it described as comfortable external buffers, Topline Securities believes rising headline inflation and higher energy and food prices have increased the risks facing the economy, supporting the case for a 50-basis-point rate hike.
Policy rate expectations for June 2027
The survey also examined market participants’ expectations for the policy rate by June 2027.
Around 56% of respondents expect the rate to rise above 11.5%, while 22% anticipate a decline below that level. The remaining 22% expect the policy rate to remain unchanged at 11.5%.
Topline Securities expects the policy rate to stay at 12% through June 2027 following its projected 50-basis-point increase in October. However, it said an earlier rate cut could become possible if international oil prices fall below $80 per barrel.
Inflation and rupee forecasts
Market participants remain divided over the inflation outlook for FY2027. Around 44% of respondents expect average inflation to range between 9% and 10%, while 27% anticipate inflation exceeding 10%. Another 22% expect average inflation to remain between 8% and 9%.
The survey also indicates expectations of relative stability in the Pakistani rupee against the US dollar through June 2027.
Approximately 44% of respondents expect the exchange rate to settle between Rs280 and Rs285 per dollar, while 12% foresee a rate of Rs285–290. Meanwhile, 41% expect the rupee to remain within the Rs275–280 range, and only 2% anticipate depreciation beyond Rs290 per dollar.
Topline Securities expects the rupee-dollar exchange rate to reach Rs280–285 by June 2027.
The survey suggests that the SBP’s forthcoming decision will be shaped by the balance between inflationary pressures, global energy prices and the country’s external-sector position. However, the final policy rate decision will rest with the Monetary Policy Committee.