Official primary source: DMMD Circular No. 04 of 2026, dated 26 October 2026 · Reviewed 26 October 2026. Legal effect, provisional status and dates are identified below; the full official document and any later amendments govern.
The monetary-policy circular establishes the precise 12% target and 11%–13% corridor, effective 27 October; the corridor width remains 200 basis points and other prior instructions are unchanged.
Exactly what changes on 27 October
DMMD Circular No. 04 of 2026 changes the policy-rate target from 11.50% to 12.00%, an increase of 0.50 percentage points or 50 basis points, by reference to DMMD Circular No. 02 of 27 April 2026.
The SBP overnight reverse-repo rate, which is the upper boundary of its interest-rate corridor, is set at 13.00% per annum, or 100 basis points above the new target. The SBP overnight repo rate, its floor, is set at 11.00% per annum, or 100 basis points below the new target.
The interest-rate corridor therefore becomes 11.00%–13.00% per annum, retaining the existing total width of 200 basis points. SBP states that it will continue to keep the money-market overnight rate close to the policy-rate target.
Banks, market participants and contract mechanics
The circular is directed to commercial banks and primary dealers. It changes the central bank's policy target and overnight facility rates; it does not directly amend the margins, base rates or repricing dates specified in every individual borrower agreement.
Corporate treasuries should identify financing linked to KIBOR or other benchmarks and apply the contract's actual benchmark observation, reset, notice and interest-period provisions. A 50-basis-point policy change should not simply be imposed as a 50-basis-point adjustment on all existing facilities.
Banks and money-market participants should update their treasury systems, facility instructions and rate references as required for the new target and overnight corridor.
Effective date and what remains unchanged
The instrument was issued on 26 October 2026 and expressly makes the revised rates effective from 27 October 2026; the two dates should not be conflated.
DMMD Circular No. 04 says all other instructions on this subject remain unchanged. There is no change in the 200-basis-point corridor width, and the notice does not itself prescribe a new universal lending rate for banks' customers.
Businesses should distinguish an operative monetary-policy rate change from separate prudential regulation, contractual pricing and loan-repricing arrangements.
Why this development matters
Banks, primary dealers and corporate treasuries should implement the 12% policy target and 11%–13% corridor while separately testing the effect on floating-rate finance against the relevant contracts.
Specific steps for affected organisations
- Update treasury and interbank rate reference tables effective 27 October 2026.
- Check whether facilities reference KIBOR, a fixed rate or another contractually defined benchmark.
- Recalculate financing forecasts based on the applicable benchmark reset and contractual spread.
- Review loan documentation and borrower communications before describing a policy-rate change as an automatic contractual rate increase.
Timing and legal status
Issued 26 October 2026; effective 27 October 2026. Prior DMMD Circular No. 02 of 27 April 2026 provided an 11.50% target, 10.50% floor and 12.50% ceiling.
The circular changes SBP policy and its overnight facilities. It does not, without reference to individual contracts, determine the lending rate or repricing date on any specific loan.
State Bank of Pakistan — DMMD Circular No. 04 of 2026 (full official text)