A rate hike, thicker buffers and a wider gap

The week in one line: with inflation still in double digits and Brent crude near $114.88 a barrel, the State Bank chose to tighten again rather than wait.

What changed this week

• The State Bank raised its policy rate by 50 bp to 12.00% on 26 Oct, effective 27 Oct, with 9 of 10 committee members in favour. It was the first increase since April, and the bank no longer gives a date for getting inflation back into its 5–7% target range; it now says only that this will happen over the medium term.
• Banks are pricing in tighter money. At the 28 Oct T-bill auction the government raised Rs1.91tr, with cut-off yields up by as much as 61 bp.
• Reserves edged up. The SBP’s own reserves rose $33m in the week to 23 Oct, to $21.52bn. That leaves $1.48bn to go to the Governor’s goal of $23bn by the end of December.
• Stocks recovered some ground. The KSE-100 closed at 167,193 on 29 Oct, still 3.9% below where it ended 2025. The rupee was steady at 276.76 per dollar, 1.2% stronger than at the start of the year.
• Oil stayed expensive. Brent settled at $114.88 a barrel on 29 Oct.

Where things stand

	Latest	For comparison
CPI inflation	10.3% (Sep)	11.1% in Aug
Core inflation, urban	8.6% (Sep)	8.8% in Aug
Policy rate	12.00%	+1.7 pp above headline inflation
SBP reserves	$21.52bn (23 Oct)	goal: $23bn by end-Dec
Current account, Jul–Sep	−$874m	−$755m a year earlier
Remittances, Jul–Sep	$10.88bn	+14% on a year earlier

Inflation is easing only slowly. Headline CPI inflation fell to 10.3% in September from 11.1% in August, but the weekly basket of essentials was still 11.85% dearer than a year earlier in the week to 22 Oct. Core inflation of 8.6% in cities says the oil shock has spread beyond fuel and food. After this week’s hike, the policy rate sits 1.7 points above headline inflation and 3.4 points above urban core: positive, but thin.

The external account is the thing to watch. The current account ran a deficit of $874m in July–September, against $755m a year earlier, as the goods trade deficit widened to $10.77bn. Remittances from workers abroad, up 14% to $10.88bn, are paying for most of that gap. The State Bank still expects the full-year deficit to stay within 0–1% of GDP.

Growth has slowed. The economy grew 3.65% in FY26, but only 2.0% in April–June as the oil shock hit, and large-scale manufacturing grew just 1.85% in July–August. The State Bank still expects 3.5–4.5% growth this fiscal year.

The budget is holding. The FBR collected Rs3,083bn in July–September, Rs30.5bn above its Rs3,053bn target, and FY26 closed with a primary surplus of 2.9% of GDP. IMF staff reached agreement on the programme’s fourth review on 7 Oct; about $1.2bn follows once the Fund’s Board approves it.

Coming up

• Early November: October CPI from the Pakistan Bureau of Statistics.
• 11 Nov: the next T-bill auction.
• November, date not yet set: IMF Executive Board on the fourth review.
• 14 Dec: the State Bank’s next rate decision.

What to watch

Whether October’s CPI comes in above or below September’s 10.3%; whether SBP reserves keep inching towards the $23bn goal; and whether oil prices ease enough to take pressure off the import bill.