Karachi: As the State Bank of Pakistan prepares for its seventh Monetary Policy Committee meeting of 2026 on October 26, a significant portion of market participants anticipate an increase in the policy rate. According to a recent survey by Topline Securities, 61% of respondents expect a rate hike, with 54% predicting a 50 basis points increase.

According to JS Global, the anticipation of a rate hike is driven by ongoing global geopolitical uncertainties impacting energy supply chains, as well as rising inflation expectations. The survey highlights concerns about elevated oil and food prices, particularly a 9% rise in wheat prices over the last four weeks, which could pressure inflation to average between 9-9.5% for the fiscal year 2027.

The last monetary policy meeting, held on September 14, 2026, saw the central bank maintaining the policy rate at 11.5%. However, the current economic conditions, marked by oil prices at $100 per barrel and a real effective exchange rate of 107-108, suggest a need for a higher real interest rate.

Secondary market yields have already factored in a potential 50 basis points hike, with six-month Treasury bills trading at 12.24% and the six-month Karachi Interbank Offered Rate (KIBOR) at 12.43%. The prevailing sentiment among market participants is that the State Bank of Pakistan will raise the policy rate to address the heightened economic risks, despite having comfortable external buffers.

Looking ahead, expectations for the policy rate by June 2027 are mixed. While 56% of respondents foresee a rate above 11.5%, 22% predict it will decline, and another 22% expect it to remain unchanged. Inflation expectations also vary, with respondents divided on whether it will range between 9-10% or exceed 10%.

On the currency front, the rupee is anticipated to remain stable, with most respondents expecting the PKR/USD exchange rate to settle in the Rs280-285 range by June 2027. As economic conditions evolve, the monetary policy decision on October 26 will be closely watched for its implications on Pakistan's financial landscape.