Pakistan central bank raises key policy rate by 100 bps to 11.5%

Pakistan's central bank raised its key policy rate by 100 basis points to 11.5% on Monday, April 28, 2026. The Monetary Policy Committee (MPC) cited the prolonged Middle East conflict as a key driver, warning that global energy prices, freight charges, and insurance premiums remain significantly above pre-conflict levels, and that inflation is likely to rise above the target range in the coming quarters.

What is the current interest rate in Pakistan?

The State Bank of Pakistan's policy rate or interest rate now stands at 11.5%, up from 10.5%. The 100 basis point increase takes effect on April 28, 2026. The MPC had held the rate steady across several consecutive meetings since December before deciding to hike it today.

Why did the SBP raise the interest rate today?

The decision was in line with analyst expectations. A poll by brokerage Topline Securities found that most analysts anticipated an increase of 50 to 100 basis points, citing persistently high crude oil prices and geopolitical volatility from the U.S.-Iran war. The MPC said global energy prices, freight charges and insurance premiums remain significantly above pre-conflict levels, while ongoing supply disruptions are adding to uncertainty.

The central bank warned that inflation is likely to increase and stay above its target range in the near term. Tighter monetary policy, it said, is needed to anchor expectations and limit second-round effects of the supply shock. Headline inflation rose to 7.3% in March, while core inflation edged up to 7.8%.

Recent surveys show weakening consumer and business confidence, the MPC added. The central bank said the recent surge in fuel prices has already begun feeding into broader price pressures, particularly through transport costs. Inflation could push into double digits in the coming months before easing, though it is expected to remain above the 5-7% target range for most of the next fiscal year.

What is the current inflation situation in Pakistan?

The headline inflation rose to 7.3% in March 2026, while core inflation edged up to 7.8%. The MPC warned that the energy price shock from the Middle East conflict has already begun feeding into core inflation through higher transport fares. The committee assessed that inflation could reach double digits in the coming months before gradually easing, and is expected to remain above the upper bound of the target range for most of FY27.

However, the MPC cautioned that the outlook depends heavily on the duration of the conflict, the extent of energy price pass-through, and potential fiscal slippages.

How is Pakistan's economy performing?

Despite tightening financial conditions, economic activity has shown signs of recovery. Real GDP grew 3.8% in the first half of FY26, supported by improved industrial and services activity, though momentum moderated in March. Growth prospects have softened due to lower-than-expected wheat output and rising external risks.

Pakistan's external position has strengthened, with a small current account surplus recorded during July-March FY26. Foreign exchange reserves reached approximately $15.8 billion as of April 24, supported by external financing and Eurobond issuance. The ongoing conflict has, however, made fiscal management more challenging, as higher oil prices have required targeted subsidies for vulnerable groups.

What is the current account and FX reserve position?

Pakistan's current account posted a small cumulative surplus during July to March FY26, supported by resilient workers' remittances. The current account for the full year is now projected to remain near the lower bound of the earlier forecast range, despite a significant worsening in terms of trade.

SBP's foreign exchange reserves stood at around USD 15.8 billion as of April 24, 2026, after significant debt repayments, supported by Eurobond issuance as Pakistan re-entered international capital markets for the first time in over four years. The MPC projected FX reserves to reach above USD 18 billion by June 2026. A staff-level agreement with the IMF was reached on March 27, 2026. The committee stressed the need to continue building external buffers amid uncertain global conditions.

Were all analysts in favor of raising Pakistan's interest rate?

Not all analysts supported the increase. Brokerage Arif Habib Limited argued in a report that the case for maintaining the policy rate at 10.5% "still holds weight," stressing that current inflationary pressures are largely supply-driven and temporary. It cautioned that responding to temporary pressures with policy tightening risks overcorrection, particularly as GDP growth only recently began recovering, expanding 3.89% in the second quarter of FY26.

The MPC, for its part, stressed that maintaining price stability remains essential for macroeconomic stability and sustainable growth. It underlined the importance of continued fiscal discipline, rebuilding external buffers and advancing structural reforms to strengthen resilience against global shocks.