The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) raised the key policy rate by 50 basis points to 12 percent on Monday. Governor Jameel Ahmad announced the decision at a press conference in Karachi after the committee met. The increase takes effect on 27 October 2026.
Nine of the MPC's 10 members voted in favour of the increase, which lifts the rate from 11.5%. The SBP said the move responds to continued geopolitical uncertainty in the Middle East and rising energy costs, and their potential effects on the domestic economy, the inflation outlook and the external account.
ENERGY PRICES AND INFLATION PRESSURE
The committee judged the decision necessary to keep inflation expectations anchored, contain second-round effects of the ongoing supply shock and bring inflation back within its 5% to 7% target range. "Geopolitical conditions have led to an increase in energy prices," Ahmad said, adding that petroleum product prices had remained above $100.
Headline inflation stood at 10.3% year-on-year in September, above the MPC's expectations and well above the target range. The committee named the re-escalation of the Middle East conflict and domestic wheat supply frictions as the two major factors keeping inflation elevated.
Core inflation remained elevated at around 8.4%. The monetary policy statement warned that sustained increases in food and energy prices could push inflation expectations higher and eventually feed into core inflation.
GROWTH AND EXTERNAL ACCOUNT PROJECTIONS
Ahmad said economic growth was expected to remain between 3.5% and 4.5% during the current fiscal year. Separately, the statement said real GDP growth had been revised to 3.7pc, almost unchanged from the initial estimate.
The SBP expects exports to reach $32.5 billion this fiscal year, with imports projected at $71 billion and workers' remittances at $45 billion. It expects the current account deficit to remain within its previously projected range of 0% to 1% of GDP for FY2026-27. The current account recorded a deficit of $874 million in the first quarter of FY2026-27.
The central bank said its foreign exchange reserves remained stable at around $21.5 billion, equivalent to approximately three months of import cover, supported by continued foreign exchange purchases. The Federal Board of Revenue also exceeded its revenue collection target in the first quarter of the current fiscal year, the statement said.
ENDING A PAUSE IN THE TIGHTENING CYCLE
Before this decision, the SBP had held its policy rate at 11.5% for three consecutive reviews, following a 100-basis-point increase in April. The latest move is its first increase since April, as inflation fuelled by high energy costs from the Gulf conflict stayed above target.
The statement noted that Pakistan had reached a staff-level agreement with the International Monetary Fund (IMF). An IMF team led by Iva Petrova visited Pakistan from 23 September to 7 October for discussions under the 2026 Article IV consultation and programme reviews. The MPC also pointed to rate rises by major central banks amid rising inflationary pressures, and to an upward revision of the IMF's global inflation projections.