- Decision
- Raise
- Rate change
- 50 bps
- policy rate
- 12%
The State Bank of Pakistan’s Monetary Policy Committee (MPC) raised the policy rate by 50 basis points to 12%, effective October 27, 2026, citing a worsening inflation outlook despite broadly unchanged growth and external-account prospects. This followed a cut to 10.5% in December 2025 and a 100-basis-point increase to 11.5% in April 2026. Headline inflation reached 10.3% year-on-year in September, above expectations, as elevated energy prices and domestic wheat supply frictions increased the risk of second-round effects. The MPC retained its real gross domestic product growth forecast of 3.5–4.5% for FY27, with activity recovering gradually and private-sector credit expanding across working capital, fixed investment and consumer finance. Foreign exchange reserves remained stable at around USD 21.5 billion, supported by continued purchases and reaching three months of import cover. The intensifying Middle East conflict is keeping global energy prices persistently elevated, while major central banks have raised interest rates amid mounting inflationary pressures. The MPC stressed the need to keep the forward-looking real policy rate adequately positive to anchor inflation expectations and bring inflation within the 5–7% target range over the medium term.
Rate evolution
The State Bank of Pakistan’s policy rate rose by a net 100 basis points over the period, following a prolonged hold at 11 percent through October 2025 as inflation stayed moderate and core inflation eased, even as activity recovered and the Monetary Policy Committee flagged widening trade deficits, weak inflows, energy-price risks, commodities and flood-related shocks. The 50 basis point cut in December reflected inflation averaging within the 5 to 7 percent target range, relatively benign commodity prices and anchored expectations, with the Committee seeing room to support sustainable growth despite sticky core inflation and a difficult export environment.
It held at 10.5 percent in early 2026 as stronger domestic momentum met higher geopolitical uncertainty over energy costs and supply disruptions, before raising the rate by 100 basis points in April to keep expectations anchored and contain second-round effects after inflation and core inflation rose, with inflation projected to stay above the 5 to 7 percent range for most of FY27. The Committee held the policy rate at 11.5 percent on June 15, judging the stance appropriate to guide inflation towards the target range over the medium term, and again on July 27 as lower global oil prices, moderating inflation and contained external pressures improved the outlook, though renewed regional conflict kept risks elevated.
On September 14, it maintained the rate at 11.5 percent as headline inflation rose to 11.1 percent in August from 9.2 percent in July, global commodity prices increased and supply disruptions persisted amid the intensifying Middle East conflict, while external pressures remained contained and activity began to recover. On October 26, 2026, the Committee raised the policy rate by 50 basis points to 12 percent, effective October 27, as persistently elevated energy prices and domestic wheat supply frictions worsened the inflation outlook, with headline inflation at a higher-than-expected 10.3 percent in September and core inflation around 8.4 percent, judging the increase necessary to anchor inflation expectations, contain second-round effects and bring inflation within the 5 to 7 percent target range over the medium term.