By Moaaz Manzoor

Businesses and borrowers hoping for cheaper credit may have to wait, as an overwhelming majority of market participants expect the State Bank of Pakistan to keep the policy rate unchanged at 11.5% on July 27 amid renewed Middle East tensions and volatility in international oil prices.

The SBP’s Monetary Policy Committee is scheduled to hold its fifth meeting of 2026 on Monday. At its previous meeting on June 15, the central bank maintained the policy rate at 11.5%, in line with prevailing market expectations.

Expectations of monetary easing had initially strengthened after a June agreement between the United States and Iran eased geopolitical tensions and pulled international oil prices lower. However, renewed tensions during the past two weeks and the subsequent rebound in oil prices have reduced the likelihood of an immediate cut, bringing inflation risks back into focus.

A Topline Securities survey showed that 97.1% of respondents expected the SBP to maintain the policy rate at 11.5%, while the remaining 2.9% anticipated a reduction of 100 basis points. None of the participants forecast a rate increase at the July meeting.

Ali Najib, Deputy Head of Trading at Arif Habib Limited, said a rate hike appeared unlikely despite the risk that geopolitical tensions and oil-price volatility could push inflation higher.

“Improving external indicators, a stable exchange rate, easing inflation trends and positive real interest rates provide the SBP with room to maintain its current stance,” Najib told Wealth Pakistan.

He expected the central bank to leave the policy rate unchanged while adopting a cautious tone and closely monitoring global developments, energy prices and inflation expectations before considering any future adjustment.

Similarly, Muhammad Bilal Ejaz, Research Analyst at Ismail Iqbal Securities, also expected no change in the policy rate.

“The SBP is likely to keep the policy rate unchanged at 11.5%, with average inflation expected to remain in single digits during FY2026-27,” he said.

However, Ejaz added that the recent rebound in oil prices and geopolitical uncertainty arising from the Middle East conflict strengthened the case for a cautious monetary policy stance.

Syed Zafar Abbas, Manager at Zahid Latif Khan Securities, said recent reductions in government savings rates indicated that authorities did not currently see a strong case for increasing the policy rate.

“The reduction in savings rates is an indicator that there is no immediate need for a policy-rate increase under the prevailing conditions,” he told Wealth Pakistan.

He cautioned, however, that any further escalation in the Middle East could raise inflationary pressures and alter the monetary-policy outlook.

AKD Securities similarly expected the SBP to maintain the status quo. The brokerage said a comfortable external-account position, slowing inflation, weaker leading economic indicators and a contraction in money supply supported the case for monetary easing.

However, it said renewed geopolitical tensions, uncertainty surrounding energy supplies and possible flood-related inflationary pressures warranted caution at the upcoming meeting.

Movements in the secondary market also reflect the change in expectations. Topline said the six-month Treasury bill yield had fallen to 11.30% after geopolitical tensions eased in June, but subsequently returned to around 11.5% as oil prices rebounded. The six-month Karachi Interbank Offered Rate was hovering near 11.67%.

For businesses and borrowers, the expected pause means financing costs are unlikely to decline immediately. Analysts, however, believe the door to monetary easing remains open later in the year, provided oil prices stabilise, geopolitical tensions recede and inflation stays under control.

Credit: INP-WealthPk