MPC in Pause Mode Today

July 27, 2026 (MLN): The central bank is expected to keep its benchmark policy rate unchanged at 11.5% in today’s Monetary Policy Committee (MPC) meeting, extending a cautious pause as policymakers weigh improving domestic fundamentals against mounting external uncertainties.

While inflation has continued its downward trajectory and macroeconomic stability indicators have strengthened, the State Bank of Pakistan (SBP) is likely to resist making any premature policy move as renewed geopolitical tensions and a sharp rebound in global energy prices threaten to complicate the disinflation path.

The latest Mettis Global MPC survey reinforces the case for continuity, with a majority of market participants expecting the central bank to maintain its current stance.

Around 58.2% of respondents, including economists, fund managers, treasury officials, and market analysts, anticipate no change in the policy rate, making a hold the clear market consensus ahead of the announcement.

However, beneath the headline number lies a market that is far from complacent. Nearly 29% of respondents expect a rate increase. In comparison, only 12.7% foresee monetary easing, highlighting a divided outlook shaped by uncertainty over global commodity prices, external vulnerabilities, and the durability of Pakistan’s inflation improvement.

Unlike previous MPC meetings, where the policy debate revolved primarily around domestic inflation trends, the July decision is expected to be heavily influenced by developments outside Pakistan’s borders. The resurgence of geopolitical tensions in the Middle East has pushed crude oil prices higher, reviving concerns over imported inflation and the country’s already significant energy import burden.

For an economy heavily dependent on imported fuel, a prolonged period of elevated oil prices could create a fresh wave of cost pressures across transportation, electricity generation, and industrial production. Such a scenario could slow the pace of disinflation and force policymakers to keep monetary conditions tighter for longer.

Yet, despite these external headwinds, Pakistan’s domestic economic backdrop continues to provide the SBP with breathing room.

Inflation has eased significantly from last year’s elevated levels, foreign exchange reserves have improved, remittance inflows have remained resilient, and the current account position has demonstrated greater stability despite a gradual recovery in import demand.

The rupee has also maintained relative stability against the US dollar, trading within a narrow range, suggesting that external pressures remain manageable for the time being.

Against this backdrop, the July MPC meeting is unlikely to mark the beginning of either a fresh tightening cycle or an immediate return to monetary easing. Instead, policymakers are expected to prioritize stability, keeping the policy rate unchanged while monitoring whether the recent surge in global commodity prices represents a temporary disruption or a more persistent inflationary threat.

The key takeaway from the survey is not merely the market’s preference for a rate hold, but the widening divergence over the policy trajectory beyond July.

While participants broadly agree that rates are likely to remain unchanged at this meeting, there is significantly less certainty about the direction of monetary policy in the months ahead. The split reflects a market caught between two competing narratives: one built on improving fundamentals and another shaped by the risk of external shocks derailing the recovery.

Fixed Income

Fixed income markets have delivered mixed signals ahead of the policy announcement. Cut-off yields at the latest T-bill auction rose across the shorter tenors, while yields on the 3-year, 5-year and 10-year PIBs declined compared with the previous auction, a combination that reads as short-end caution paired with longer-end conviction that the easing cycle, whenever it resumes, will eventually pull yields down.

At the same time, secondary-market yields have eased across the curve since mid-June, and overall market pricing suggests investors remain cautious amid evolving global developments rather than committed to a single view.

PKRV data set shows the secondary-market curve compressing modestly across almost every tenor between the two most recent snapshots, consistent with a market pricing in continuity rather than a rate move this month. Short-tenor yields (1W–3M) now sit at or just below the 11.5% policy rate itself, while the curve maintains a modest upward slope out to 20 years, a shape consistent with a market that expects the easing cycle to begin only gradually, and further out.

Source: Mettis Global

METTIS GLOBAL SURVEY RESULTS

Mettis Global surveyed market participants, traders, analysts and treasury desks, in the days ahead of the July 27 decision. The survey drew 55 responses on the headline rate call, with response rates on subsequent questions ranging from 52 to 54 as some respondents skipped later questions. Full results for every question are set out below.

1. What change do you expect at the July 27 MPC meeting?

A clear majority backs continuity, but the 29% combined share expecting some form of hike (across the four hike categories) is large enough to keep the meeting from being a complete non-event for rates traders. Only a small minority, about 12.7% combined, is positioned for a cut of any size, effectively ruling out easing as the market's base case for this particular review.

2. Where do you expect the policy rate to stand by end-December 2026?

Combine the two buckets below 11.5% and 59.2% of respondents expect at least some easing by year-end, even though only a small minority want it delivered at this specific meeting, pointing to a market that expects the SBP's first move, when it comes, to be later in the year rather than in July. A meaningful 25.9%, however, still see the rate ending the year above 11.5%, mirroring the hike-leaning minority from the July question.

3. What is your expectation for average CPI inflation in FY27?

This is arguably the most striking result in the survey: 61.1% of respondents expect FY27 average CPI above 8%, well outside the SBP's 5–7% medium-term target band that FY26 inflation only just fit inside. The market, in other words, appears considerably less confident than the SBP's own framing that disinflation will hold through FY27, a divergence worth watching if oil prices stay elevated.

4. Can the rupee maintain its current stability against the US dollar over the next six months?

A majority still backs stability, consistent with the calm PKR 278–279 trading band seen through July, but 43.2% expect some degree of depreciation over the next six months, mostly in the mild, sub-2% range rather than a sharp move.

5. Where do you see the KSE-100 Index by end-December 2026?

Views are more dispersed here than on any other question: while the single largest cluster (30.8%) sits in the 190,000–200,000 band, a combined 21.1% sit at the extremes, either below 170,000 or above 210,000, suggesting real two-way conviction on the index's trajectory rather than a tight consensus range.

6. Which factor is likely to have the biggest influence on SBP policy over the next six months?

Oil prices dominate as the market's top driver of SBP policy, cited by a majority of respondents on their own and more than double the next-ranked factor (inflation). Together, oil and inflation account for 81.1% of all responses, the external account, fiscal position, exchange rate and the IMF programme, combined, account for less than a fifth.

7. Which major risk poses the greatest threat to Pakistan's macroeconomic outlook?

The macro-risk question echoes the policy-driver question closely: oil and the geopolitical tensions feeding it together account for 79.3% of all responses, confirming that the market's attention over the next six months is overwhelmingly focused on the external energy shock rather than domestic fiscal or political risk.

8. Which sector will see the most significant recovery or growth in the next six months?

Banking & Finance and Technology & Software are running almost neck-and-neck as the market's preferred growth sectors for the next six months, together accounting for 63.5% of total responses.

Banking & Finance’s lead likely reflects expectations that a stable-to-lower interest rate environment, coupled with stronger external buffers, will support bank margins and improve asset quality. Meanwhile, Technology & Software continues to attract optimism due to structural growth drivers and demand that remains relatively insulated from interest rate movements.

9. Overall growth optimism (1–10 scale) for the remainder of FY27

The distribution clusters around the midpoint rather than at either extreme: the modal response is 6/10, and 39 of 53 respondents (73.6%) placed their score between 4 and 7.

Very few respondents are at the pessimistic extreme (5 gave a score of 1) or the optimistic extreme (4 gave a score of 10), and the average of 5.5/10 reads as cautiously constructive rather than confident, consistent with a market that likes the disinflation and reserves story but is not fully convinced it will hold if oil stays elevated.

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