The State Bank of Pakistan (SBP) is projected to execute a 50-basis-point hike during its upcoming Monetary Policy Committee (MPC) meeting on Monday, October 26, pushing the benchmark interest rate to 12% to combat entrenched, double-digit inflation.
According to market assessments published by Bloomberg, the central bank is poised to pivot from its recent holding pattern. The SBP has maintained an unchanged policy rate since its last hike in April. While a broadly stable rupee and expanding dollar buffers provide theoretical room for the SBP to stay on hold, a combination of persistent above-target inflation, escalating price expectations, and a recent macroeconomic recovery heavily tilt the scales toward “monetary tightening”.
The structural case for tighter monetary policy is driven by severe cost-of-living metrics. Headline inflation violently surged to 11.1% year-on-year in August, accelerating sharply from 9.2% in July. Core inflation currently sits at 8.7%. Consequently, inflation has printed in double digits during five of the past six months, thoroughly breaching the central bank’s mandated 5-7% target range as high energy costs add pressure.
“Medium-term inflation expectations are also climbing, which risks making inflation more persistent through wage and price setting.”
Despite previous rate hikes, the current ex-post real interest rate remains suppressed below its historical average of approximately 2.5%. This statistical baseline indicates that the current policy stance is materially less restrictive than usual.
Simultaneously, the domestic economy has demonstrated a renewed capacity to absorb higher borrowing costs. Following a 0.6% contraction in the second quarter of 2026, aggregate economic activity rebounded to register a 2.8% year-on-year expansion during the third quarter.
| Key Macroeconomic Indicator | Current Recorded Value | Target / Previous Value |
| Projected Policy Rate | 12.0% | 11.5% (Previous) |
| Headline Inflation (August) | 11.1% | 9.2% (July) |
| Core Inflation | 8.7% | N/A |
| SBP Inflation Target Range | N/A | 5-7% |
| GDP Growth (3Q26) | 2.8% Expansion | 0.6% Contraction (2Q26) |
During its previous session, the MPC held the baseline rate at 11.5%. At that time, policymakers explicitly flagged the intensifying Middle East conflict as a primary catalyst for elevated global commodity prices and prolonged supply chain disruptions. The committee noted that overall uncertainty around the economic outlook had aggressively risen.
Looking forward, the MPC previously forecasted that inflation would gradually ease toward the upper threshold of the 5-7% target range by June 2027. However, the committee cautioned that external and domestic risks to this trajectory have increased significantly. Authorities cited extreme volatility in international commodity markets, aggressive electricity and gas tariff adjustments, global supply bottlenecks, and aggressive food price swings exacerbated by worsening El Niño climate conditions.