The State Bank of Pakistan (SBP) has increased its benchmark interest rate by 50 basis points, raising it from 11.5% to 12%, as concerns over global energy prices and domestic inflation continue to influence the country’s economic outlook.
The decision, announced on Monday, marks the first increase in the policy rate since June 2026. According to the central bank, the move aims to contain inflationary pressures and prevent rising energy and food costs from spreading further across the economy.
The increase was approved by nine of the 10 members of the Monetary Policy Committee (MPC). The revised policy rate will take effect on October 27, 2026, according to the SBP’s announcement.
The central bank cited persistent global energy costs and inflation risks associated with the ongoing conflict in the Middle East as key factors behind its decision. Geopolitical tensions have contributed to uncertainty in international commodity markets, raising concerns about the potential impact on Pakistan’s domestic prices.
Pakistan remains vulnerable to changes in international energy prices because higher oil and other fuel costs can increase transportation expenses, electricity generation costs, and the prices of goods and services. These pressures can affect households, businesses, and the broader economy.
The SBP also highlighted recent inflation figures that exceeded expectations. Consumer inflation reached 10.3% in September, while core inflation remained elevated at approximately 8.4%.
Higher energy and wheat prices were among the main contributors to the increase in inflation, according to the central bank. The figures raised concerns about the persistence of price pressures and the possibility that inflation could remain above the levels previously anticipated by policymakers.
The central bank warned that prolonged geopolitical tensions, fluctuations in international commodity markets, and possible increases in domestic energy tariffs could create additional inflationary risks.
By raising the policy rate, the SBP aims to anchor inflation expectations and limit the broader impact of rising costs. Higher interest rates generally increase borrowing costs, which can moderate consumer spending and business investment. This can help reduce demand-related inflationary pressures, although the effects usually take time to become visible.
For businesses, the higher rate could make loans more expensive, potentially affecting expansion plans, working capital requirements, and investment decisions. Consumers may also face higher borrowing costs on financing products linked to prevailing interest rates.
At the same time, depositors may benefit from improved returns on certain savings products, depending on how banks adjust their rates. The overall effect on households will vary according to their savings, borrowing commitments, and exposure to changing prices.
The policy adjustment follows three consecutive Monetary Policy Committee meetings in which the central bank kept the benchmark rate unchanged. The latest increase indicates a shift in its assessment of inflation risks amid changing domestic and international economic conditions.
The SBP’s next Monetary Policy Committee meeting is scheduled for December 14, 2026. Policymakers will continue to assess inflation trends, energy prices, global developments, and other economic indicators when determining the future direction of monetary policy.
The latest decision places inflation control at the centre of Pakistan’s monetary policy outlook, with the impact of global energy costs and domestic price pressures likely to remain important considerations for businesses, consumers, and financial markets.