Karachi: In light of the upcoming Monetary Policy Committee meeting scheduled for July 27, 2026, the State Bank of Pakistan (SBP) is expected to keep the policy rate unchanged at 11.5%. This expectation aligns with the majority opinion in a recent survey conducted by Topline Securities, which indicated that 97% of respondents foresee no change in the current rate.

According to JS Global, the central bank's decision-making is influenced by shifts in market expectations resulting from fluctuating geopolitical conditions. The signing of a Memorandum of Understanding between the United States and Iran on June 18, 2026, initially led to expectations of potential rate cuts in upcoming meetings, as softer oil prices and eased tensions were anticipated. However, renewed tensions have since emerged, causing a rebound in oil prices and diminishing the likelihood of immediate rate reductions.

The secondary market has also reflected these changing expectations. Following the MoU, yields on the 6-month Treasury bill fell significantly but have since adjusted upwards. Current yields suggest a more cautious approach with the potential for smaller rate hikes in the future.

Furthermore, the Topline Securities poll indicates that market participants are divided on the policy rate outlook for December 2026, with a near equal split between those expecting no change and those anticipating a rate cut. Additionally, inflation expectations for the fiscal year 2027 vary, though the majority predict it to average between 7% and 10%.

The SBP's cautious stance is underpinned by the ongoing geopolitical uncertainty and recent oil price fluctuations, factors that continue to shape the economic landscape and influence monetary policy decisions.