SBP likely to keep rate unchanged at 11.5%

A 38% YoY narrower current account deficit. A primary surplus running ahead of IMF targets. A sovereign rating upgrade less than two months old. On the fundamentals that, alongside other indicators, matter for monetary policy, Pakistan is navigating this ongoing bout of external turbulence in better shape than in years.
Yes, Brent has risen 9% in recent weeks since the last MPS, while headline inflation has accelerated sharply from last year’s unusually low base. Both warrant monitoring, but neither is sufficient on its own to trigger a policy response. With the macro backdrop relatively well anchored, the appropriate response to a geopolitical shock is patience, until its persistence and domestic transmission become clearer.
We therefore expect the SBP to keep the policy rate unchanged at 11.5% at the September 2026 MPC.
Global conditions have remained fluid since July, with the US-Iran conflict escalating in late August and early September around the Strait of Hormuz. International oil prices are up, and for energy-importing Pakistan, this remains a key risk. But here too, the SBP is likely to wait for evidence of sustained pass-through into inflation and the external account before responding.
That said, the inflation picture has clearly turned less benign, although the YoY increase needs to be viewed in context. Average CPI inflation in 2MFY27 rose to 10.18% from 3.56% last year. For FY27, we expect headline inflation to hover slightly above 8%, assuming international oil prices average USD 80/bbl and our other key assumptions hold. Any meaningful deviation in these assumptions could push the inflation trajectory either way, with the key question for SBP being whether inflation becomes broad-based and persistent.
Growth momentum remains constructive. LSM growth closed FY26 at around 5%, its strongest performance in roughly four years. While GDP growth is expected to improve in FY27, the SBP expects it to remain in the 3.5%–4.5% range. The economy is entering the year with stronger industrial momentum, reducing the urgency for an immediate policy response.
The external account provides another important buffer. Pakistan opened FY27 with a current account deficit of just USD 328mn in July, down 38% YoY and sharply below June’s USD 814mn deficit. Goods exports reached a 19-month high of around USD 3.0bn, while remittances rose 13% YoY to USD 3.6bn. FY26 closed with a marginal USD 304mn deficit, and SBP guidance points to a FY27 deficit of 0–1% of GDP, limiting the case for pre-emptive tightening.
Fiscal consolidation further strengthens the case for patience. Pakistan’s fiscal deficit narrowed to 2.6% of GDP in FY26, the lowest level in percentage-of-GDP terms, although in absolute terms it stood at PKR 3.3trn, the lowest since FY18. Meanwhile, the primary surplus reached 2.9%, comfortably above the IMF target. The FY27 budget targets a 2% primary surplus and a 3.6% overall deficit.
The recent sovereign rating upgrade reinforces the improving macro backdrop. In July, S&P Global upgraded Pakistan’s long-term rating to ‘B’ from ‘B-‘, its highest level in nearly eight years, citing stronger institutional capacity and rebuilding of FX reserves. While risks remain, the upgrade reflects improved policy credibility and external buffers.
The bond market also appears to be looking through the near-term turbulence. Secondary-market yields have moved little since the last MPC, with short-tenor yields broadly flat to marginally lower. The modest rise at the long end appears more consistent with a higher term premium amid oil uncertainty than expectations of tightening.
According to our AHL survey, 87.5% of respondents expect the SBP to leave the policy rate unchanged, while only 12.5% anticipate a 50bps increase.
For now, we expect the SBP to keep the policy rate unchanged at 11.5% at the Sept’26 MPC, while keeping its options open as incoming data and the external environment evolve. The direction of the next move will ultimately depend on the persistence of the external shock, oil prices and the extent of domestic inflation pass-through.