Pakistan’s central bank raised its key policy rate by 50 basis points to 12% on Monday, October 26, 2026, its first increase since April, as inflation fuelled by high energy costs from the Gulf conflict stayed above target.
What happened?
The State Bank of Pakistan raised its benchmark interest rate from 11.5% to 12%. The move follows months in which price pressures stayed elevated, driven in large part by costly oil imports as Middle East tensions pushed up energy costs for an economy that depends heavily on imported fuel.
Key details
- Increase: 50 basis points, taking the policy rate from 11.5% to 12%.
- First rate increase since April 2026.
- Inflation context: consumer price inflation in the first quarter of fiscal year 2027 stood at 10.2%, compared with 4.3% in the same period a year earlier.
- Market expectations: most analysts had forecast a half-point rise, while some bankers argued for a full-point move to contain inflation.
- Business reaction: the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) denounced the hike on October 26, calling it counterproductive, saying it raises operational costs for businesses, dampens industrial expansion and erodes export competitiveness, and urged the rate be brought down to single digits.
What it means for people in Pakistan
The policy rate is the benchmark against which banks price much of their lending, so the rise means higher borrowing costs for the government, for companies and for ordinary borrowers. For households, it can mean costlier loans; for businesses, higher financing costs at a time when operating expenses are already rising. The central bank’s aim is to keep inflation expectations from becoming entrenched, but traders and industrialists argue cheaper borrowing would better support production, trade and jobs.
