The State Bank of Pakistan's Monetary Policy Committee raised the policy rate by 50 basis points to 12 per cent on Monday, October 26. The new rate takes effect on October 27, and nine of the committee's ten members voted for the increase.
The central bank said the move is meant to keep inflation expectations anchored and limit the second-round effects of the current supply shock, so that inflation returns to its 5-7 per cent target over the medium term. The committee pointed to the intensifying Middle East conflict and the slim chances of a quick resolution, which have kept global energy prices high.
Headline inflation came in at 10.3 per cent in September, above expectations, while core inflation held near 8.4 per cent. The SBP named high energy and wheat prices as the main drivers and said the hike was needed to keep the real policy rate positive on a forward-looking basis.
Where the economy stands
According to the policy statement, foreign exchange reserves have held steady at about $21.5 billion since the last meeting, roughly three months of import cover, and a staff-level agreement has been reached with the IMF. The current account posted a deficit of $874 million in the first quarter of FY27, but the full-year deficit is still projected at 0-1 per cent of GDP.
The committee said economic activity is recovering gradually. Large-scale manufacturing grew 1.9 per cent year-on-year in July-August, and workers' remittances are now expected to beat earlier projections. The SBP projects real GDP growth of 3.5-4.5 per cent in FY27, while warning that further escalation in the Middle East and El Niño-related weather risks could weigh on the outlook.
For borrowers, the decision means costlier business and household loans, while savers may see slightly better returns.