The State Bank of Pakistan’s (SBP) Monetary Policy Committee (MPC) on Monday kept the key policy rate unchanged at 11.5 per cent.
The decision comes as prolonged tensions in the Middle East drive up global oil prices and fuel inflation.
In a detailed statement, the MPC said it decided to keep the policy rate unchanged with a majority decision of seven out of ten members. MPC noted the recent escalation in the Middle East conflict, which it said led to an increase in global commodity prices and persistent supply chain disruptions.
“However, recent domestic macroeconomic data turned out broadly in line with the MPC’s expectations,” the statement said, adding that headline inflation increased by 11.1pc year on year in August from the previous 9.2pc in July and “core inflation was slightly lower than expectations”.
“External account pressures remained contained, supported by robust workers’ remittances and higher financial inflows.”
MPC noted that economic activity picked up “as reflected by recent high-frequency indicators”.
MPC said that the current monetary policy rate was “appropriate to guide inflation towards target range of 5-7pc over the medium term”.
“However, uncertainty regarding the outlook has increased, particularly from the worsening geopolitical environment.”
Listing key developments since its last meeting, MPC noted that Pakistan’s sovereign credit rating was upgraded to B3 by Moody’s with a stable outlook.
It also noted that the country had tapped international capital markets to “raise $3bn through Eurobonds,” leading to an increase in foreign reserves to over $21bn
“Third, inflation expectations of both businesses and consumers increased in September, while their confidence weakened,” the statement read.
It also observed an output decline of 3.5pc in June in large-scale manufacturing, which it said brought the “cumulative FY26 growth to 5pc”.
“Fifth, fiscal consolidation turned out higher than the budgetary target during FY26,” it said, further noting that Federal Board of Revenue (FBR) collection had remained “on-target” during July to August in FY27.
It continued: “While SBP transferred higher profit of Rs1.9 trillion than the budgeted amount of Rs1.4tr to the government.
“Lastly, central banks have become more cautious amidst challenging global economic conditions.”
Within the context of the ongoing developments, the MPC said that it was committed to “achieving price stability with close monitoring of incoming data and the ongoing situation in the Middle East”.
It also observed that adverse geopolitical events as well as weather disruptions had increased in frequency, posing risks to the macroeconomic outlook.
In this regard, the MPC stressed the need for maintaining a “prudent monetary and fiscal policy mix and further buildup of buffers to absorb supply shocks”.
Bankers had anticipated a status quo, but some analysts had predicted that the central bank was in a difficult position and would lift the policy rate by 50 points.
Renewed US-Iran hostilities and the risk of disruption to shipping through the Strait of Hormuz have kept oil prices elevated, adding to import costs in energy-dependent Pakistan.
The Sensitive Price Index (SPI), or the weekly inflation, rose 8.62pc year-on-year for the week ending on September 10, with a major contribution from costly onion and petroleum products.
The SBP has held the rate steady since raising it by 100 basis points in April in response to rising global energy prices and supply chain risks — its first increase in nearly three years.
Before that, the central bank had maintained the rate at 10.5pc in January and March after a surprise 50bps cut in December 2025.
The SBP has cut the key rate by a cumulative 1,050 basis points since mid-2024, from a record 22pc reached in June 2023, as inflation cooled sharply from multi-decade highs.
Additional input from Reuters
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