SBP Raises Policy Rate to 11.5% as Inflation Risks Grow

The State Bank of Pakistan raised its benchmark policy rate by 100 basis points to 11.5 percent on Monday, marking a major monetary policy shift at a time when inflation risks, regional instability and external financing pressures are once again shaping Pakistan’s economic outlook. The decision was announced after a meeting of the Monetary Policy Committee in Karachi.

According to the central bank’s announcement, the revised policy rate will take effect from April 28, 2026. The move reverses the softer interest-rate environment that had previously supported borrowing and business activity, and signals that policymakers are prioritising inflation control and financial stability over short-term easing.

The meeting was chaired by SBP Governor Jameel Ahmed, and the rate increase came as markets watched closely for the central bank’s response to rising global energy uncertainty and Pakistan’s ongoing engagement with the International Monetary Fund. Analysts had expected the MPC to take a cautious position because any renewed pressure on fuel prices could quickly affect inflation, imports and the rupee.

In its brief communication, the State Bank said the Monetary Policy Committee had decided to raise the rate by one percentage point, with a detailed monetary policy statement expected to follow. The official move indicates that the central bank wants to keep inflation expectations anchored while maintaining credibility with lenders, investors and international partners.

The timing is particularly important because the IMF executive board is scheduled to meet on May 8 to consider approving more than $1.2 billion for Pakistan under two ongoing programmes. The expected amount includes around $1 billion under the Extended Fund Facility and about $210 million through the Resilience and Sustainability Facility.

Pakistan and the IMF reached a staff-level agreement in March after discussions covering fiscal discipline, macroeconomic stability and structural reforms. Talks also included fuel pricing adjustments, subsidy rationalisation and petroleum levy targets, all of which remain politically sensitive because they directly affect household budgets and transport costs.

The rate hike will have mixed effects across the economy. For savers, higher interest rates may improve returns on bank deposits and fixed-income instruments. For businesses and consumers, however, borrowing costs are likely to rise, affecting working capital, industrial expansion, auto financing, housing loans and credit-dependent investment plans.

Pakistan’s economy has been trying to rebuild confidence after repeated balance-of-payments pressures, inflation shocks and tight fiscal conditions. The IMF has acknowledged progress in external buffers and market confidence, but regional tensions and volatile energy markets remain serious risks, especially for an import-dependent economy.

The next major signal will come from the State Bank’s detailed policy statement, which is expected to explain the inflation outlook, external-sector risks and future direction of monetary policy. Businesses, banks and investors will now watch whether the rate hike is a one-time defensive move or the start of a tighter policy cycle if price pressures continue to build.