SBP Raises Interest Rate to 12% as Gulf Conflict Fuels Inflation

SBP Raises Interest Rate to 12% as Gulf Conflict Fuels Inflation

Pakistan's central bank raised its key interest rate by half a percentage point to 12% on Monday, its first increase since April, as inflation fuelled by high energy costs from the Gulf conflict stayed above target. The State Bank of Pakistan's Monetary Policy Committee voted nine to one in favour of the move, ending a run of three straight holds since June.

Annual inflation eased to 10.3% in September from 11.1% in August, but it remains well above the bank's 5-7% target range, while wholesale price inflation climbed to 13.3%. Governor Jameel Ahmad pointed to global crude oil prices above $100 a barrel and a rise in wheat prices over the last two to three months, and said it would take longer than planned to bring inflation back inside the target. The bank also revised its growth forecast for the fiscal year ending June 30, 2027, to 3.7%.

For households and businesses, the decision means borrowing stays expensive for longer. The committee said the hike was needed to keep inflation expectations anchored, contain second-round effects from the energy shock, and protect macroeconomic stability. The International Monetary Fund, which reached a staff-level agreement with Pakistan on October 7 that could unlock about $1.21 billion subject to board approval, has urged the country to keep monetary policy tight enough to bring inflation durably back to target.

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