State Bank of Pakistan Unlikely to Hike Policy Rate in Final FY26 Review

The State Bank of Pakistan's (SBP) Monetary Policy Committee (MPC) is scheduled to convene on June 15 for its final policy review of fiscal year 2026. Market participants largely anticipate that the SBP will not increase the policy rate during this meeting.

This expectation stems from stable or easing global oil prices and reduced geopolitical tensions in the Gulf. Supply chain conditions have also reportedly improved over the past month. While the possibility of renewed hostilities is not entirely ruled out, the likelihood of a broader conflict appears lower than that of a diplomatic resolution, according to market sources.

Concerns over a prolonged conflict have diminished following developments such as improved prospects for a deal between the US and Iran, and the continuation of a ceasefire despite sporadic attacks. Reports of ongoing diplomatic efforts have also contributed to calming markets. However, unresolved disputes involving Israel, including its presence in occupied territories and positions in Lebanon, remain sources of uncertainty.

Faisal Mamsa, Chief Executive Officer of Tresmark, noted that the MPC will likely evaluate factors such as currency stability and the external account before making rate decisions. He suggested that Pakistan’s recent economic stability has been more influenced by strong inflows and the accumulation of foreign exchange reserves than by interest rates. Mamsa also stated that monetary policy has limited influence on supply-side inflation.

Analysts project average inflation for FY26 to be around 7%, with a slight increase to just over 8% for FY27. Mamsa indicated that oil prices have shown limited reaction to military strikes on Iran, moving lower after reduced hostilities and indications from US President Donald Trump of a potential peace agreement. He added that subdued demand from China suggests average oil prices are unlikely to remain elevated for an extended period, with inflation expected to soften from August onwards.

Sources within the financial sector also suggest that a further increase in the policy rate is improbable, and a reduction appears unlikely in the near term.

According to Dawn Pakistan, the only policy rate increase during the current fiscal year occurred on April 27, when the SBP raised the benchmark rate by 100 basis points to 11.5 percent, citing geopolitical tensions and their impact on oil prices and global supply chains.