State Bank of Pakistan raises policy rate amid inflation risks

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State Bank raises policy rate

Highlights

State Bank of Pakistan raised its policy rate by 50 basis points to 12% on Monday, citing deteriorating inflation risks from global commodity prices and Middle East tensions.
Nine out of ten Monetary Policy Committee members supported the rate hike, while one called for a larger increase to counter persistent inflation threats.
SBP reserves remain steady at about $21.5 billion, IMF staff-level agreement stands, and the bank raised its remittance forecast to $45 billion despite Middle East conflict and wheat supply risks.

Monetary policy decision and inflation outlook

As reported by Pakistan Business Recorder, the State Bank of Pakistan’s Monetary Policy Committee raised the policy rate by 50 basis points to 12% on Monday, in line with market expectations. The move reflects concern that the inflation outlook has deteriorated amid rising global commodity prices and escalating regional geopolitical tensions.

SBP Governor Jameel Ahmad said the ongoing U.S.-Iran conflict and other developments in the Middle East were among the main factors behind the decision. He said nine of the committee’s 10 members voted in favor of the increase, while one member supported a larger hike.

The committee says maintaining a tighter policy stance is necessary to anchor inflation expectations and limit the effects of supply shocks. It is seeking to keep inflation within its 5% to 7% target range as risks to prices continue to build.

External buffers and domestic risks

The MPC notes that several indicators have remained supportive since its previous meeting, including SBP reserves holding at about $21.5 billion and a staff-level agreement with the IMF. Ahmad also says remittance inflows have improved, prompting the central bank to lift its annual remittance forecast to $45 billion from $44 billion.

Even so, the committee flags growing risks from an intensified conflict in the Middle East and domestic wheat supply problems. Those factors, along with changing consumer inflation expectations, are adding pressure to the central bank’s effort to stabilize prices and manage the broader economic outlook.

In our earlier article on the IMF’s outlook for the Middle East, North Africa and Pakistan region, we highlighted warnings that a prolonged conflict and renewed disruptions to energy production and trade routes could deepen volatility. The IMF projected a 2026 contraction followed by an uneven rebound in 2027, while urging governments to prioritize price stability and rebuild fiscal buffers as existing shock absorbers wear thin.

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