Central bank to announce policy rate today | The Express Tribune

The State Bank of Pakistan’s Monetary Policy Committee on Monday raised the policy rate by 50 basis points to 12 per cent, effective October 27, with nine of ten members voting in favour.

The decision aims to keep inflation expectations anchored and limit second-round effects from the ongoing supply shock so inflation returns to the 5–7 per cent target range over the medium term.

The Committee cited the intensification of the Middle East conflict and low prospects of near-term resolution, which have kept global energy prices elevated. While the domestic impact has so far remained contained due to earlier monetary adjustments and fiscal discipline, the inflation outlook has worsened relative to the previous assessment. External account and growth projections remain broadly unchanged, but risks have increased.

Since the last meeting, SBP’s foreign exchange reserves stayed stable around $21.5 billion, equivalent to three months of import cover, supported by continued purchases. A staff-level agreement was reached with the IMF. Consumer inflation expectations rose while those of businesses declined, and confidence indicators weakened for both groups. Revised real GDP growth for FY26 was reported at 3.7 per cent, nearly unchanged from the initial estimate.

FBR tax collection in Q1-FY27 grew 7 per cent year-on-year and exceeded the target by Rs33 billion. Major central banks have also raised rates amid higher inflation, and the IMF revised its global inflation projections upward.

Economic activity is recovering gradually. Large-scale manufacturing grew 1.9 per cent year-on-year in July-August FY27, up from 0.4 per cent in Q4-FY26. Cement and petroleum sales, private-sector credit, the Purchasing Managers’ Index, nighttime lights, and nitrogen dioxide emissions all point to improvement. Kharif crop estimates were better than expected, and services indicators, including ICT exports, are gradually strengthening.

The MPC projects real GDP growth of 3.5–4.5 per cent in FY27, subject to risks from further Middle East escalation and adverse climate events linked to El Niño conditions.

The current account recorded a deficit of $874 million in Q1-FY27. Exports of rice, high-value-added textiles and services are recovering, while workers’ remittances remain resilient and are now expected to exceed earlier projections. Imports, particularly non-energy goods, are rising with activity. The full-year current account deficit is still assessed at 0–1 per cent of GDP, with reserves projected to rise further, though subject to commodity price, financing and supply risks.

On the fiscal side, contained expenditures and the transfer of SBP profit are expected to keep the overall and primary balances in surplus for Q1-FY27. Broad money growth accelerated to 12.7 per cent year-on-year as of October 9, driven by reserve accumulation, while private-sector credit expanded 14.1 per cent across working capital, fixed investment and consumer segments.

Headline inflation stood at 10.3 per cent in September, higher than expected, with core inflation steady near 8.4 per cent. Elevated energy and wheat prices remain key drivers. The Committee judged the rate increase necessary to maintain a positive real policy rate on a forward-looking basis.

Addressing a press conference following the MPC meeting, SBP Governor Jameel Ahmad said crude oil prices hovering around $100 per barrel had increased pressure on domestic prices.

He said nine of the MPC’s 10 members voted in favour of increasing the policy rate, reflecting growing concerns over inflation and external economic risks.

The governor said the economic outlook had changed significantly since the previous monetary policy meeting, with rising global commodity prices and geopolitical developments adding to uncertainty.

Ahmad said earlier assessments during July and August had suggested that inflation would remain around 7% towards the end of the year, adding that recent developments had altered that outlook, and bringing inflation down to the previously anticipated level was now expected to take longer.

He said core inflation had shown improvement, but warned that higher energy prices could generate secondary inflationary effects in the coming months.

The governor noted that global oil and commodity price increases were affecting domestic inflation and putting additional pressure on Pakistan’s external account.

Ahmad said rising global commodity and oil prices were expected to affect the country’s current account deficit projections, saying despite these pressures, the central bank expected the current account deficit to remain between 0% and 1% of gross domestic product (GDP).

He said workers’ remittances were expected to improve, supported by measures aimed at encouraging overseas Pakistanis to send money through formal banking channels.

According to the governor, Pakistan received $10.9 billion in remittances during the first quarter of the current financial year.

He said full-year remittances were now expected to reach between $44 billion and $45 billion.

Ahmad also referred to a remittance reward scheme, saying the initiative was expected to support inflows in the coming months.

The governor said Pakistan’s export performance had shown signs of improvement, although growth remained below expectations, adding that projected exports of between $32.5 billion and $33 billion during the current financial year.

However, he warned that the country was facing considerable pressure on imports due to rising international commodity and energy prices.

Ahmad said the import bill was expected to reach approximately $71 billion during the financial year, saying that the higher import costs could complicate efforts to manage the external balance, despite anticipated improvements in remittances and exports.

Last month, the MPC kept the policy rate unchanged at 11.5%, in line with market expectations. The decision was the third consecutive hold after the 100-basis-point increase in April, the first hike in nearly three years. The July meeting had also left the rate at 11.5%, citing an improved macroeconomic outlook tempered by risks from renewed conflict in the Middle East.

In July, the MPC decided to maintain the policy rate at 11.5%, citing an improved macroeconomic outlook tempered by elevated risks from the renewed conflict in the Middle East. The committee assessed that earlier de-escalation had lowered global oil prices and eased supply-chain pressures, contributing to some improvement in recent indicators.

The MPC noted that proactive policy management and fiscal consolidation had helped absorb the ongoing supply shock and preserve stability. It reiterated its commitment to bringing inflation into the 5-7% medium-term target range and said the current stance remains appropriate.

The MPC in June kept the policy rate unchanged at 11.5%, in a cautious approach amid mixed signals on inflation and external risks.

Market experts had shown divided opinions ahead of the announcement. According to a poll by Topline Securities, 49% of respondents anticipated no change, while another 49% expected a hike, with 34% forecasting a 50bps increase and 15% a 100bps rise. Only 2% predicted a cut of up to 50bps.

In March, amid the outbreak of the United States-Israeli war against Iran and heightened regional geopolitical tensions, the MPC decided to maintain the policy rate unchanged at 10.5%.

The stance reflected caution over potential imported inflation pressures from surging global energy prices, triggered by the US-Iran tensions that drove Brent crude up sharply to around $108 per barrel. The cautious pause in March was seen as support for ongoing macroeconomic stability efforts, building on prior rate reductions (including the 50 bps cut to 10.5% in December 2025), while allowing time to monitor energy price dynamics, domestic inflation trends, and external account resilience.

Later, in a move that defied market expectations, the MPC announced a sharp 100 basis point increase in the policy rate in April, raising it to 11.5%. The SBP’s move signalled a decisive pivot, prioritising inflation anchoring over near-term growth support, even as the economy posted a 3.89% GDP expansion in Q2 and a $1.07 billion current account surplus in March.