Analysts split on SBP rate call as inflation heads to 10%
Pakistan's headline inflation is expected to reach 10% in October 2026, with analysts divided on whether the State Bank of Pakistan will respond with a rate rise at its October 26 Monetary Policy Committee meeting.
A Growth Securities report authored by Nasheed Malik projects the National Consumer Price Index rising 1.5% month-on-month in October, against 6.2% year-on-year and 1.7% month-on-month in October 2025. Average inflation over the first four months of FY27 is put at 10.2%, compared with 4.8% a year earlier, and above the government's 8.9% average expectation for the year, according to the report.
The pressure is concentrated in transport and housing. The transport index is expected to rise 0.15% to 0.20% month-on-month after a 5.5% monthly increase in the average petrol price to Rs396.06 per litre, up 48.3% year-on-year, while higher electricity charges and liquefied petroleum gas prices, projected up 6.2% month-on-month, are expected to lift the housing index. The food index is forecast to rise around 0.25% to 0.30% month-on-month, driven by increases of 10% in wheat, 14% in chicken, 11% in pulse gram and 5% in garlic, the report said.
Malik said real interest rates returned to positive territory in June 2026 and are projected to reach 1.5% in October, from 1.2% in September. He expects inflation to stay in the 9% to 10% range until March 2027 if average fuel prices remain between Rs390 and Rs400 per litre, with FY27 average inflation projected at 9% to 9.5%, and sees the MPC raising the policy rate by 50-100 basis points on October 26 if fuel prices stay elevated.
A separate assessment by AKD Securities Director Research Mohammed Awais Ashraf argues the improved external and fiscal position strengthens the case for holding rates. He cited robust remittances, improving exports, record-high foreign exchange reserves and a contained current account, alongside the $3 billion Eurobond issued at record-low spreads, as buffers giving the SBP room to hold. A slowdown in large-scale manufacturing and a decline in fuel prices since the previous meeting were also expected to support a status quo decision, he wrote. Ashraf raised his FY27 inflation forecast to 9.1% from an earlier projection on a higher oil-price assumption of $96.3 per barrel against $72.5 previously, kept FY28 at 6%, and pushed back the assumed start of monetary easing to April 2027 from October 2026, citing prolonged higher oil prices and a larger-than-expected rise in wheat prices. Dubai crude has declined 15.5% since the previous MPC meeting, from $127 to $107 per barrel, reflecting improved flows through the Strait of Hormuz and the end of seasonal refinery maintenance, though renewed Houthi attacks on Saudi infrastructure, Red Sea disruption and declining US oil inventories continue to underpin prices, according to the note.
