A simple guide to equity exposure through the interest rate cycle, built from the SBP policy rate and Pakistan inflation. Updated 6 Nov 2026.
The State Bank of Pakistan policy rate is 12%, after a move from 11.5% to 12% in October 2026. Inflation was 9.6% in October 2026, which puts the real interest rate at +2.4 percentage points. For context, the rate peaked at 22% (reached in May 2024) and its lowest level since 2015 was 5.75% in May 2016.
Pakistan's stock market has been unusually sensitive to interest rates. When the State Bank cuts rates, bank deposits and government bonds pay less, money moves into shares, company borrowing costs fall and valuations rise. When it raises rates to fight inflation or defend the rupee, the opposite happens. The biggest KSE-100 rallies of the last two decades came during or just after easing cycles, and the deepest falls came during sharp tightening.
The model on this page reads the policy rate together with inflation and places the market in a regime, from risk-on (rates falling, real rates high enough to keep cutting) to caution (rates rising or inflation running ahead of the rate). Each regime comes with a suggested share of equities in a portfolio and the KSE-100 return that followed similar periods in the past. It is a simple, rules-based guide to exposure, not a prediction of next month's index.
| Policy rate | 12% |
| Inflation (CPI) | 9.6% (October 2026) |
| Real rate | +2.4 pp |
Related: Pakistan economy dashboard, KSE-100 seasonality, investment calculators.
Data and analysis for education and research. Not investment advice. Prices and figures can be revised by their sources.
12%, set in October 2026 when it moved from 11.5%.
About +2.4 percentage points: the policy rate of 12% minus inflation of 9.6% in October 2026.
Historically yes. Lower rates make deposits and bonds less attractive, cut company interest costs and lift valuations, so easing cycles have coincided with the strongest KSE-100 rallies.
No. It is a rules-based guide for education and research. Your own goals, time horizon and risk tolerance should decide how much you hold in equities.