The State Bank of Pakistan (SBP) on Monday raised the SBP policy rate by 50 basis points to 12 percent, ending a three-meeting pause as rising oil and food prices darkened the inflation outlook.
The Monetary Policy Committee (MPC) announced the decision on October 26, 2026. The benchmark rate had stayed at 11.5 percent since June, with the committee choosing to hold it at its meetings on July 27 and September 14. This is the first increase since June 2026.
Why the SBP Policy Rate Was Raised
According to the central bank, nine of the ten MPC members voted for the 50 basis point hike, while one member wanted a bigger increase. SBP Governor Jameel Ahmad said the inflation outlook had worsened sharply because of the US-Iran conflict and wider tensions in the Middle East.
Global oil prices have stayed above $100 per barrel, and wheat prices have climbed over the past two to three months. The committee warned that higher food and energy costs could spill over into core inflation, and said the hike is meant to keep inflation expectations in check and keep the real interest rate positive.
Inflation Above the SBP Target
Headline inflation stood at 10.3 percent year-on-year in September, higher than the MPC had projected. It was 11.1 percent in August and 9.2 percent in July. The central bank’s medium-term target range is 5 to 7 percent.
Food and fuel make up a large share of household spending in Pakistan, which is why the committee is watching oil and wheat prices closely ahead of its next decision. Before this move, the SBP policy rate had been held at 11.5 percent for three straight meetings while the central bank waited to see how inflation would settle.
Reserves, Remittances and Growth
- SBP’s foreign exchange reserves are around $21.5 billion, enough for about three months of imports.
- Workers’ remittances reached $10.9 billion in the first quarter of FY27. The full-year forecast has been raised to $45 billion from $44 billion.
- The current account deficit is expected to stay between 0 and 1 percent of GDP this fiscal year.
- Real GDP growth for FY26 has been revised to 3.7 percent, while FY27 growth is projected at 3.5 to 4.5 percent.
The committee also noted that Pakistan has reached a staff-level agreement with the IMF. It flagged a further escalation in the Middle East and possible El Niño effects as the main risks to growth.
What the Hike Means
Most market analysts had expected a 50 basis point increase, though some economists, including the Pakistan Institute of Development Economics (PIDE), had argued for keeping the rate unchanged. Stocks came under pressure ahead of the announcement, with the KSE-100 index falling more than 600 points in intraday trading on Monday after five straight weeks of losses.
The MPC’s next meeting is scheduled for December 14, 2026.
How the SBP Policy Rate Affects You
The SBP policy rate is the benchmark that banks use to price most loans and deposits. When it goes up, KIBOR usually follows within days, so monthly instalments on car financing, home loans and running finance facilities tend to rise for new and floating-rate borrowers.
Savers are on the other side of the change. Banks generally revise profit rates on savings accounts and term deposits after a hike, and returns on National Savings schemes and government securities often move in the same direction.
For businesses, a higher SBP policy rate raises the cost of working capital at a time when energy prices are already squeezing margins. The government’s own borrowing costs also climb, since a large share of its domestic debt is linked to short-term rates.
The full decision is available on the State Bank of Pakistan’s monetary policy page.
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