SBP policy rate: Most expect 11.5% hold as hike risk rises

Pakistan’s monetary policy outlook has become more uncertain ahead of the State Bank of Pakistan’s September 14 meeting, as rising inflation and higher global oil prices strengthen the case for tighter policy. Even so, most market participants expect the SBP policy rate to remain unchanged at 11.5%.

Will the SBP raise interest rates on Sept. 14?

Most market participants still expect the SBP to hold its policy rate at 11.5% on September 14. Topline Securities’ survey shows 84% expecting no change, while Arif Habib sees a 60%-65% chance of a 50-basis-point hike as inflation accelerates and oil prices stay elevated.

The SBP last kept the policy rate unchanged at 11.5% at its July 27 meeting, in line with market expectations.

Since then, domestic petrol prices have increased by about PKR 24 per liter, while diesel prices have declined by only PKR 2 per liter despite measures to cap refinery crack margins.

Renewed tensions between the United States and Iran have also pushed crude prices higher, increasing risks to Pakistan’s inflation, import bill and external account.

Topline’s survey showed 84% of market participants expect the central bank to keep rates unchanged at the September 14 Monetary Policy Committee meeting.

Another 14% expect a 50-basis-point increase, while 2% anticipate a 100-basis-point hike.

Why does Topline expect the SBP policy rate to stay at 11.5%?

Topline Securities said expectations for a hold are largely based on projections that FY27 inflation will remain below 9% if oil prices stay around $95 per barrel.

The brokerage estimates that such an inflation rate would leave a positive real interest-rate spread of more than 250 basis points, broadly in line with historical real rates.

Improving foreign exchange reserves and a contained current account balance are also supporting expectations for unchanged rates, according to Topline.

Secondary-market yields have remained broadly stable. Three-month and six-month Treasury bills are trading at 11.41% and 11.68%, respectively, compared with levels prevailing around the previous MPC meeting.

Topline itself expects the SBP to maintain the policy rate at 11.5% on September 14.

The brokerage said its view is supported by a sufficient real-rate spread and an improving external outlook, particularly after Pakistan’s recent $3 billion Eurobond issuance.

However, persistent oil prices and food inflation could prompt the SBP to raise rates by 50 to 100 basis points at later meetings in October or December, Topline said.

For March 2027, market participants remain divided. Around 35% expect the policy rate to remain at 11.5%, while 45% expect it to fall below the current level and 20% see it rising above 11.5%.

Topline expects the rate to remain unchanged through March 2027, but said sustained oil prices above $95 per barrel combined with elevated food inflation could trigger tightening later in the monetary policy cycle.

How has Pakistan’s inflation outlook changed?

Topline’s survey showed 45% of respondents expect average FY27 inflation between 8% and 9%, while 18% forecast inflation between 9% and 10%.

Another 16% expect inflation between 7% and 8%, while 22% anticipate average inflation above 10%.

Topline raised its own FY27 inflation forecast to above 8.5% from an earlier estimate of 8% to 8.5%, assuming oil prices remain around $90 to $95 per barrel.

The brokerage expects inflation to move into double digits in September, citing higher electricity and transport costs.

It estimates electricity prices could rise about 10% month-on-month in September bills due to a positive fuel cost adjustment of PKR 2.0581 per kilowatt-hour, compared with PKR 0.7503 per kWh previously, alongside a quarterly adjustment of PKR 0.5194 per kWh.

The sharp increase in petrol prices has also prompted Topline to raise its estimate for monthly transport inflation to 3.3% from an earlier 0.15%.

Why does Arif Habib see a stronger case for a rate hike?

Arif Habib Ltd. takes a more hawkish view, saying the probability of a 50-basis-point increase to 12% has risen significantly ahead of the September 14 decision.

The brokerage noted that August inflation accelerated to 11.1% year-on-year from 9.2% in July and 3.1% in August 2025.

Core inflation has also increased, suggesting price pressures are becoming broader rather than remaining concentrated in food and energy.

Arif Habib estimates urban trimmed-mean inflation has reached around 8.9%, indicating that the recent acceleration in headline inflation is beginning to spill over into underlying prices.

The rise in inflation has also sharply reduced the real policy-rate cushion.

With the policy rate at 11.5% and headline inflation at 11.1%, the ex-post real policy rate is now only around 40 basis points, according to Arif Habib.

The brokerage said a 50-basis-point increase would restore a more meaningful positive real rate and could help anchor inflation expectations.

Arif Habib assigns a 60%-65% probability to a 50-basis-point hike to 12%, compared with a 35%-40% probability that the SBP keeps the rate at 11.5%.

How are higher oil prices complicating the SBP decision?

Arif Habib said renewed geopolitical tensions and crude prices above $100 a barrel have increased macroeconomic risks for Pakistan.

A sustained oil-price shock could raise transport and energy costs, increase the import bill and potentially widen the trade and current account deficits.

The brokerage said policymakers must consider not only the direct effect of higher fuel prices but also possible second-round effects as energy and transportation costs feed into broader inflation.

Pakistan’s external position is stronger than during previous periods of stress, supported by improved foreign exchange reserves and the ongoing IMF program.

However, Arif Habib said a prolonged oil shock could reverse some of those gains and place renewed pressure on the rupee.

The case for monetary tightening is not straightforward because a significant part of the latest inflation acceleration is supply-driven, particularly through energy and food prices.

Higher interest rates cannot directly address an international oil-price shock and could instead weaken domestic demand and investment.

If the SBP views the shock as temporary and believes inflation expectations remain anchored, it could maintain the current policy rate.

Arif Habib therefore expects the MPC to remain data-dependent rather than begin an aggressive tightening cycle.

What do markets expect for the rupee and PSX?

Topline’s survey showed market participants largely expect the rupee to remain stable through March 2027.

Around 33% expect the currency to trade between PKR 280 and PKR 285 per dollar, while 24% see it between PKR 285 and PKR 290.

The remaining 43% expect the exchange rate to remain between PKR 275 and PKR 280. No respondents expect the rupee to weaken beyond PKR 290 per dollar by March 2027.

Topline expects the rupee to trade around PKR 280 to PKR 285 per dollar by March.

Arif Habib, meanwhile, recommended a cautious stance in the Pakistan Stock Exchange ahead of the MPC decision rather than aggressive portfolio reshuffling.

A 50-basis-point hike could put short-term pressure on rate-sensitive sectors, particularly highly leveraged and high-duration companies, while a hold could trigger a relief rally.

The brokerage said investors may prefer to wait for the MPC decision before making significant portfolio adjustments because the subsequent policy path will depend heavily on oil prices and inflation.

The September 14 decision is expected to signal whether Pakistan’s monetary policy cycle is moving toward renewed tightening or whether the central bank remains comfortable maintaining its current stance.