SBP likely to raise policy rate to 12%: Bloomberg

October 23, 2026 (MLN): The State Bank of Pakistan (SBP) is likely to raise its policy rate by 50 basis points to 12% at its upcoming monetary policy meeting, due Monday, October 26, according to Bloomberg.

The central bank has kept rates unchanged since a hike in April.

A broadly stable rupee and rising dollar buffers leave some room for SBP to stay on hold, but persistent above-target inflation, rising inflation expectations and a pickup in growth make a stronger case for tightening.

It has been pointed out that inflation has been in double digits in five of the past six months, well above SBP’s 5-7% target, with high energy costs adding to the pressure.

The ex-post real interest rate sits below its historical average of about 2.5%, which shows the policy as currently less restrictive than usual.

Medium-term inflation expectations are also climbing, which risks making inflation more persistent through wage and price setting.

On growth, economic activity rose 2.8% year on year in 3Q26, after a 0.6% contraction in 2Q26, indicating the economy can absorb tighter policy.

At its previous meeting, the Monetary Policy Committee (MPC) held the policy rate at 11.5%. The committee flagged that the intensifying Middle East conflict had pushed global commodity prices higher and prolonged supply chain disruptions, and that uncertainty around the outlook had risen.

Headline inflation climbed to 11.1% year on year in August from 9.2% in July, with core inflation at 8.7%, while consumer and business inflation expectations also rose.

The MPC expected inflation to ease gradually towards the upper end of the target range by June 2027, but cautioned that risks to this outlook had increased significantly, citing volatile commodity prices, electricity and gas tariff adjustments, supply disruptions and food price swings amid worsening El Niño conditions.

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