Pakistan’s central bank raised its benchmark policy rate by 100 basis points to 11.50% on Monday, reversing a long easing cycle as policymakers warned that fresh inflation pressures are building again. The State Bank of Pakistan’s move, announced after the Monetary Policy Committee meeting on April 27, marks the first rate increase in almost three years.
The shift comes at an awkward moment for the economy. Inflation had already started edging up before the latest decision, with Pakistan Bureau of Statistics data showing headline CPI at 7.3% year-on-year in March 2026, up from 7.0% in February. That pushed inflation above the SBP’s 5% to 7% target band and gave the central bank a stronger case for tightening.
What seems to have really changed the tone, though, is the external shock. The MPC said the prolonged Middle East conflict has intensified risks to Pakistan’s macroeconomic outlook through higher global energy prices, freight charges, insurance premiums and supply-chain disruptions. It also judged that inflation could remain above target in the next few quarters, prompting what it called a tighter policy stance to keep expectations anchored and prevent second-round effects from spreading across the economy.
The decision was not a complete bolt from the blue, but it was still more aggressive than most forecasts. Ahead of the meeting, a Reuters poll reported that six of 10 analysts expected the SBP to leave the rate unchanged at 10.5%, while only one had pencilled in a 100-basis-point increase. That gap between consensus and outcome underlines how quickly the inflation picture has darkened.
Until now, the central bank had been on a very different path. The SBP had cut rates by a cumulative 1,150 basis points since June 2024, when the policy rate stood at 22%, and had last reduced borrowing costs by 50 basis points in January. It then held at 10.5% in March, even as oil-market volatility was already beginning to cloud the outlook. Monday’s increase suggests the easing phase is over, at least for now.
For businesses and households, the immediate message is pretty simple: borrowing is getting more expensive again because the central bank is more worried about inflation than growth. The SBP appears to be signalling that preserving macroeconomic stability now matters more than giving the recovery extra breathing room. Whether this turns into a one-off response or the start of a new tightening cycle will depend heavily on oil prices, regional tensions and how quickly domestic inflation feeds through in the months ahead.
