Pakistan Central Bank Raises Policy Rate to 12%

The State Bank of Pakistan raised its benchmark policy rate by 50 basis points to 12.0% at its October 26, 2026 meeting, marking its first increase since April, as rising energy and food costs threatened to delay disinflation. The decision reflected concerns over inflationary pressures stemming from the Middle East conflict, with oil prices above $100 per barrel increasing the risk of second-round effects across the economy. Annual inflation eased to 10.3% in September from 11.1% in August but remained above the central bank’s 5%-7% target range for seven consecutive months. Meanwhile, higher borrowing costs could weigh on the economic recovery, with the central bank revising its GDP growth forecast to 3.7% for the fiscal year ending June 2027.

The State Bank of Pakistan left its benchmark policy rate unchanged at 11.5% at its September 14th, 2026 meeting, keeping borrowing costs steady for a third consecutive meeting and in line with market expectations. Credit-rating upgrades and a record USD 3 billion bond sale underscored improvements in investor confidence. Still, energy-dependent Pakistan remains vulnerable to energy shocks following a surge in global oil prices due to the conflict in the Middle East, threatening to increase import costs and strain external finances. Headline inflation jumped to 11.15% in August, more than tripling from 3.1% a year earlier and moving further above the SBP’s target range of 5-7%.

The State Bank of Pakistan left its benchmark policy rate unchanged at 11.5% at its July 27th, 2026 meeting, marking a second consecutive pause as policymakers cited an improving macroeconomic outlook. Headline inflation eased to 11.1% in June from 11.7% in May, reflecting lower global energy prices and favorable electricity tariff adjustments. Economic growth slowed to 4.0% in the first quarter of 2026, weighed by the Middle East conflict and the resulting rise in global energy prices. Looking ahead, the central bank expects stronger commodity-producing sectors to support services activity, with FY2027 GDP growth projected at 3.5%-4.5%. Inflation is forecast to gradually ease toward the upper end of the 5%-7% target range by June 2027. However, the outlook remains subject to uncertainty regarding geopolitical tensions and weather conditions, including El Niño effects, and potential fiscal slippages.