SBP Policy Rate & Inflation: How 11.50% Fights Rising Prices
The State Bank of Pakistan’s policy rate — currently 11.50% — is the main weapon against inflation. This guide explains how it works, the journey from the record 22% of 2023, and the painful trade-off between taming prices and killing growth.
Quick answer: The SBP policy rate is 11.50% per annum (October 2026) — down from a record 22% in June 2023. Higher rates cool inflation by raising borrowing costs and supporting the rupee; the cost is slower growth and heavier debt servicing. SBP’s inflation target: 5–7%.
In this guide
How the policy rate fights inflation
The policy rate is what the SBP charges banks; it anchors every other interest rate — KIBOR (3-month ~11.7–12%), business loans, government borrowing. Higher rates: raise borrowing costs (cooling demand), reward savers (encouraging saving over spending), and support the rupee (higher returns attract/retain capital, and the rupee at ~277/USD steadies import prices). With CPI at 10.3% and core at 8.6%, the current 11.50% stance is mildly restrictive — designed to keep disinflation on track.
The journey: 22% to 11.50%
June 2023: with inflation at 38%, the SBP hiked to 22% — the highest in Pakistan’s history. It held there through the worst, then cut in steps as 2024’s disinflation took hold and through 2025’s calm. The 2026 energy shock (CPI back to 10.3%) has paused the easing — the SBP now balances sticky core inflation against fragile growth.
The trade-off
High rates crush inflation but also crush growth: businesses shelve expansion, the government’s debt servicing balloons (a huge slice of the budget), and unemployment rises. Cut too fast and inflation roars back — the classic central-banker dilemma. Pakistan lived both sides: 22% helped break 38% inflation, but growth stayed anaemic. Today’s 11.50% is the uneasy middle. The effects guide covers what both extremes do to households.
What next
Watch three things: core inflation (8.6% urban — the SBP’s true compass), oil prices (the Hormuz wild card), and the rupee. If core keeps easing and energy stays calm, further cuts are possible; another oil shock would freeze or reverse them. SBP’s monetary policy committee meets roughly every six weeks.
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Policy rate: FAQs
What is the SBP policy rate today?
11.50% per annum (October 2026).
What was Pakistan’s highest interest rate?
22% — set in June 2023 when inflation hit 38%.
How does the policy rate reduce inflation?
By raising borrowing costs (cooling demand), rewarding saving, and supporting the rupee — which lowers import prices.
What is SBP’s inflation target?
5–7% over the medium term.
