State Bank lifts policy rate to 12% as oil prices threaten Pakistan's inflation fight
Pakistan's central bank raised its benchmark policy rate by 50 basis points to 12% on Monday, ending a run of three consecutive holds at 11.5% as rising global oil prices and geopolitical tensions darkened the inflation outlook. The Monetary Policy Committee's decision, taken at its third meeting of fiscal year 2026–27, was broadly expected by the market.
Topline Securities had forecast the 50-basis-point increase, citing geopolitical tensions and uncertainty over global energy supplies as the main threats to economic stability. The brokerage cautioned that prolonged disruption could deepen inflationary pressure while widening risks to Pakistan's external account. Another brokerage house also expected the same move, pointing to improving economic activity and the case for acting before inflation becomes embedded.
The stakes are high for a country that leans heavily on imported energy. A sustained rise in international petroleum prices would lift transport, electricity and production costs, feeding through to consumer prices. The rate rise is the central bank's attempt to get ahead of that chain before it reaches household budgets.
For borrowers, the shift is immediate. Companies that rely on bank credit for operations, equipment or expansion face higher interest bills and may defer investment, while households on floating-rate loans could see repayments climb. Savers may gain if banks lift deposit returns, though the size of any adjustment is up to individual lenders.
The move caps a volatile two years for the policy rate, which stood at 15% in November 2024 before a series of cuts took it as low as 10.5% and then back up through a 100-basis-point rise in April 2026. Where it goes next, the central bank has signalled, depends on inflation and whether global energy markets settle.
