KARACHI: The State Bank of Pakistan (SBP) has increased its benchmark interest rate by 50 basis points to 12%, citing mounting inflation risks from the prolonged Middle East conflict, elevated global energy prices and rising domestic costs.
The Monetary Policy Committee (MPC) approved the increase on Monday, with nine of its 10 members voting in favour. The revised rate will take effect on October 27. The central bank said escalating regional tensions had worsened the inflation outlook, making a tighter monetary policy necessary to contain price pressures and keep inflation expectations under control.
The SBP aims to bring inflation back within its medium-term target range of 5% to 7%. However, Governor Jameel Ahmad warned that returning inflation to the target range would take longer than previously anticipated.
Pakistan’s annual inflation eased to 10.3% in September from 11.1% in August but remained well above the central bank’s target. The MPC also flagged domestic wheat supply disruptions and the risk of further increases in food and energy prices.
The latest decision marks the first policy rate increase since April, when the central bank raised borrowing costs by 100 basis points to 11.5%. The rate subsequently remained unchanged through the September review.
Despite the inflation risks, the SBP said Pakistan’s economic growth and external account outlook remained broadly stable. The central bank expects economic growth of between 3.5% and 4.5% in fiscal year 2026-27, while Governor Ahmad put the growth outlook at around 3.7%.
The governor also raised the central bank’s remittance forecast to $45 billion from $44 billion. Imports are projected at approximately $71 billion, while exports are expected to reach between $32.5 billion and $33 billion.
The SBP expects the current account deficit to remain within 0% to 1% of gross domestic product (GDP), although elevated commodity prices and international financial pressures continue to pose risks to the outlook.
