The State Bank of Pakistan on Monday raised its key interest rate by 50 basis points to 12 per cent. The SBP policy rate move ends a run of holds that followed a 100 basis point rise in April, and it lifts borrowing costs for banks, businesses and households across the country.
State Bank Governor Jameel Ahmed announced the decision at a press conference in Karachi after a meeting of the Monetary Policy Committee. He said the committee had reviewed conditions since its last meeting in September and found several underlying factors behind the decision, above all the inflation outlook.
Ahmed cited the United States-Israel war on Iran and its effect on energy and oil prices. He also pointed to developments in the domestic market and their effect on inflation. Consumer expectations and the views of other forecasters were taken into account, along with global commodity and oil prices and their effect on the external account, remittance flows and export trends.
Nine of the committee’s 10 members voted to raise the rate.
SBP policy rate: what the governor said about the economy
Ahmed said conditions had worsened since the September meeting in some areas. He noted a deterioration in the current account, but added that its effect was still between zero and one per cent of gross domestic product and would stay in that range.
The central bank revised its remittance outlook upward, from 44 billion dollars to 45 billion dollars. On exports, Ahmed said the trend was improving but was not yet in line with what the economy needs. He put imports close to 71 billion dollars for the current fiscal year.
Growth was also discussed. The bank’s estimate for last year was 3.7 per cent, but one important change was a downward revision for the final quarter of the last fiscal year, from 2.9 per cent to 2 per cent, mainly because of the Middle East situation. For the current fiscal year, the governor put expected growth between 3.5 per cent and 4.5 per cent, with exports expected to reach 32.5 billion dollars.
Petroleum prices stayed above 100 dollars, Ahmed said, and wheat prices had also risen. Both factors added to the inflation pressures the committee weighed before it voted.
Why the rate rise matters for borrowers in Pakistan
A higher policy rate tends to push up the cost of borrowing across the economy. Banks price many loans off the central bank rate, so businesses that borrow for working capital and households that borrow for cars and homes can face higher monthly costs after a rise.
That link is why the decision reaches beyond financial markets. Our explainer on what inflation means in Pakistan and our look at the effects of inflation set out how price rises bite, while auto loans rose in Pakistan in September.
The rate rise also fits a longer story. The history of inflation in Pakistan shows how sharp price surges in past years forced the central bank to act, and the current move follows the same logic: lift the rate now to keep price expectations from drifting higher.
How the rate reached 12 per cent
The policy rate stood at 11.5 per cent before Monday’s decision. The central bank had held it steady since raising it by 100 basis points in April in response to rising global energy prices and supply chain risks. That April rise was its first increase in nearly three years.
Before that, the bank had held the rate at 10.5 per cent in January and March after a surprise 50 basis point cut in December 2025. The bank has cut the key rate by a cumulative 1,050 basis points since mid-2024, from a record 22 per cent reached in June 2023, as inflation cooled sharply from multi-decade highs.
Monday’s rise reverses only a small part of that easing cycle.
The decision was reported by Dawn and confirmed in a separate Geo News report on the governor’s press conference.
What is the new policy rate?
The new policy rate is 12 per cent, up 50 basis points from 11.5 per cent.
How did the committee vote?
Nine of the 10 members voted to raise the rate, while one member believed it should have risen further.
