KARACHI: The State Bank of Pakistan (SBP) is widely expected to keep its benchmark policy rate unchanged at 11.5% at its upcoming monetary policy meeting on July 27, according to a new survey by Topline Securities, as renewed U.S.-Iran tensions cloud the outlook for oil prices and inflation.
The survey of key market participants found that 97% of respondents expect the central bank’s Monetary Policy Committee to maintain the current rate, while just 3% anticipate a 100-basis-point cut. The findings align with Topline’s own forecast for no change.
The July 27 meeting will be the fifth MPC gathering of 2026. At its previous meeting on June 15, the bank held the rate at 11.5%, matching market expectations. At that time, a poll showed 49% of participants had predicted no change.
Market sentiment has swung sharply since then. On June 18, the signing of a U.S.-Iran Memorandum of Understanding eased geopolitical tensions and pushed global oil prices lower, prompting traders to price in cumulative rate cuts of 100 to 150 basis points over the next two to three MPC meetings.
But those expectations have since receded. Renewed hostilities between Washington and Tehran over the past two weeks have lifted oil prices again, reducing the likelihood of an imminent easing. Analysts say markets are now waiting for clarity on whether new negotiations between the two countries will materialize.
The shifting outlook is visible in Pakistan’s secondary bond market. Following the June 18 MoU, the yield on the 6-month Treasury bill tumbled 116 basis points to 11.30% by July 9-10, from a high of 12.46% on June 11, dropping below the policy rate of 11.5%. Over the past 10 days, however, yields have climbed back about 20 basis points to 11.50%.
“While inflation remains well contained, heightened geopolitical uncertainty and the recent rebound in oil prices warrant a cautious approach before considering any policy easing,” Topline Research said in a note.
The 6-month Karachi Interbank Offered Rate, or KIBOR, currently stands at 11.67%, while the 6-month T-bill yield is at 11.5%. Both have fallen 62 and 69 basis points, respectively, since the June 15 policy meeting. Topline said prevailing secondary market yields imply expectations of a 50-to-75-basis-point hike.
Outlook for year-end
On the policy rate outlook for December 2026, survey respondents were divided: 49% expect rates to remain at 11.5%, while 46% foresee a cut below that level. Just 6% predict rates will rise above 11.5%. Topline Research itself expects the policy rate to fall below 11.5% by year-end.
Inflation expectations for fiscal year 2027 were also varied. Among respondents, 34% see average inflation in the 8%-9% range, 31% expect 9%-10%, and 29% forecast 7%-8%. Only 3% predict inflation between 6% and 7%, and another 3% expect it to exceed 10%. Topline projects inflation will average 7.0% to 8.0% in FY27.
On the currency front, most respondents expect the Pakistani rupee to remain stable against the dollar through December. About 46% see the exchange rate settling at 280-285 rupees per dollar, 31% forecast 285-290, and 23% expect the rupee to strengthen to 275-280. No respondents predicted the currency would weaken beyond 290 rupees per dollar.
Topline Research forecasts the rupee will trade at 280-285 rupees per dollar by December 2026.
