Pakistan Keeps Policy Rate Unchaged at 11.5%

The State Bank of Pakistan left its benchmark policy rate unchanged at 11.5% on June 15, 2026. While recent geopolitical developments have been broadly positive, concerns over global oil prices continue to pose risks to the inflation outlook. Headline inflation accelerated to 11.7% in May 2026, exceeding the central bank’s 5%–7% target range and reaching its highest level since June 2024. Inflation is expected to remain in double digits over the coming months, driven by several risks, including higher domestic fuel prices, potential fiscal slippages, and uncertainty surrounding food prices amid weather-related challenges. Meanwhile, the economic growth rose to 3.7% in FY26, supported primarily by the services and industrial sectors, with contributions from agricultural activities. Looking ahead, economic activity is expected to moderate as spillovers from regional conflicts and adverse weather conditions continue to weigh on the outlook for FY27.

The State Bank of Pakistan raised its benchmark policy rate by 100 bps to 11.5% on April 27, 2026, surprising analysts who expected it to remain steady at 10.5%. This marked the first rate hike since June 2023, amid heightened economic uncertainty, with volatile oil prices from Middle East tensions clouding the inflation outlook. Policymakers said a tighter stance was needed to anchor inflation expectations and contain second-round effects of the current supply shock. The inflation rate in Pakistan quickened for the third month to 7.3% in March, the highest since August 2024, breaching the central bank’s 5–7% target range for the first time since October 2024, driven by energy costs, currency pressures, and structural supply constraints. The MPC assessed that the current supply shock may push inflation to double digits in the coming months before it starts to ease subsequently. However, inflation is expected to stay above the upper bound of the target range for most of FY27.

The State Bank of Pakistan kept its benchmark policy rate unchanged at 10.5% in March, as expected, extending the pause in its easing cycle. Policymakers cited heightened economic uncertainty as oil prices surged amid escalating tensions in the Middle East. Pakistan remains particularly vulnerable to rising energy costs due to its heavy reliance on imported fuel. A prolonged energy shock could also pressure the rupee and complicate the country’s commitments under its IMF stabilization program. Analysts warn the recent fuel price increase could push inflation to around 9.25% in the second quarter, with headline inflation having risen to 7% in February, the highest since October 2024. Meanwhile, the government’s 4.2% GDP growth target for the fiscal year ending July is becoming increasingly challenging amid the Middle East crisis, severe monsoon floods that displaced roughly three million people, and supply-chain disruptions linked to clashes with Afghanistan.