Highlights
- The State Bank of Pakistan’s Monetary Policy Committee raised the policy rate by 50 basis points to 12% on Monday, October 26, effective October 27, up from 11.5%
- Nine of the MPC’s 10 members voted in favour of the increase
- September headline inflation was 10.3% year on year and core inflation remained elevated at around 8.4%, against a medium-term target range of 5–7%
- Foreign exchange reserves stayed stable at around $21.5 billion, about three months of import cover, and FY27 real GDP growth is projected at 3.5–4.5%
The decision: 50 basis points, 9 votes to 1 in effect, effective October 27
The State Bank of Pakistan’s (SBP) Monetary Policy Committee (MPC) decided to increase the policy rate by 50 basis points to 12% on Monday, with the decision taking effect from October 27, 2026 (Profit by Pakistan Today). The decision was backed by nine out of 10 committee members (Profit by Pakistan Today). SBP Governor Jameel Ahmad announced the decision at a press conference in Karachi following the MPC meeting, and said nine of the MPC’s 10 members voted in favour of raising the interest rate (Geo News).
The increase takes the policy rate up from 11.5% (Geo News). On the timeline, this is the first increase since April, after a 100-basis-point rise in April, and it ends a pause of three straight holds since June (TRT World). The Express Tribune’s meeting history points the same way: last month the MPC kept the rate unchanged at 11.5%, in what was the third consecutive hold after the 100-basis-point increase in April (The Express Tribune).
The committee’s own reasoning was stated in full in its monetary policy statement, and it is worth carrying verbatim because it is the core of the story: “Considering these developments and the evolving risks, the MPC deemed today’s decision as necessary to keep inflation expectations anchored, contain second-round effects of the ongoing supply shock, and bring inflation within the target range of 5–7%” (Profit by Pakistan Today). The committee said the decision would help preserve macroeconomic stability, which is necessary for sustainable economic growth (Profit by Pakistan Today).
Why now: energy, wheat and an inflation print above expectations
The MPC noted that the intensification of the Middle East conflict and low prospects of its near-term resolution had worsened the inflation outlook, and that global energy prices remained persistently elevated amid the ongoing conflict (Profit by Pakistan Today). Governor Ahmad said geopolitical conditions had led to an increase in energy prices, adding that petroleum product prices had remained above $100 (Geo News). He said conditions had deteriorated compared with the committee’s September meeting, while expectations for inflation and the current account deficit had also increased somewhat, and wheat prices had also risen (Geo News).
On the domestic side, the MPC noted that the re-escalation of the Middle East conflict and domestic wheat supply frictions were two major factors keeping inflation elevated, with their expected continuation over the next few months worsening the outlook (Profit by Pakistan Today). Elevated energy and wheat prices, along with prices of allied products, contributed significantly to headline inflation reaching 10.3% year-on-year in September, higher than the MPC had expected, while core inflation remained elevated at around 8.4% (Profit by Pakistan Today). Annual inflation eased to 10.3% in September from 11.1% in August, but it remained above the bank’s medium-term target range (TRT World).
The committee warned that elevated food and energy inflation could further increase inflation expectations and feed into core inflation in the coming months (Profit by Pakistan Today). It also listed the risks around that outlook: geopolitical tensions, global commodity price volatility, unanticipated adjustments in energy tariffs, further increases in wheat and allied product prices, and adverse weather conditions (Profit by Pakistan Today). The MPC said maintaining an adequately positive real policy rate on a forward-looking basis was necessary to bring inflation within the target range over the medium term (Profit by Pakistan Today).
That framing matters for how to read this hike. This was not presented as a response to demand overheating at home. In the committee’s own account, the drivers are a supply shock — energy prices set by a conflict abroad, and wheat supply frictions at home — and the risk it is guarding against is that a supply shock becomes embedded, through expectations, into core inflation. That is why the statement repeatedly returns to anchoring expectations rather than to cooling spending.
Reserves, the IMF and the fiscal numbers the MPC cited
The external position, in the MPC’s assessment, had not deteriorated in the same way. The SBP said its foreign exchange reserves remained stable at around $21.5 billion, equivalent to approximately three months of import cover, supported by continued foreign exchange purchases (Geo News). The committee also noted that the SBP’s foreign exchange reserves had remained stable at around $21.5 billion, equivalent to three months of import cover (Profit by Pakistan Today). The statement also noted that Pakistan had reached a staff-level agreement with the International Monetary Fund (IMF) (Geo News).
Pakistan’s current account recorded a deficit of $874 million in the first quarter of FY27, according to the MPC statement (Profit by Pakistan Today). Based on those developments, the committee assessed that the current account deficit would remain within its earlier projected range of 0–1% of GDP during FY27 (Profit by Pakistan Today).
On the fiscal side, during the first quarter of FY27, Federal Board of Revenue (FBR) tax collection grew by 7% year-on-year, exceeding the target by Rs33 billion (Profit by Pakistan Today). With the transfer of substantial SBP profits and contained expenditures, the overall fiscal and primary balances were assessed to remain in surplus during the quarter (Profit by Pakistan Today). At the same time, the MPC said the intensification of the Middle East conflict had made fiscal management more challenging, and it emphasised the need to strengthen fiscal discipline, broaden the tax base and accelerate structural reforms (Profit by Pakistan Today).
The energy shock behind this decision is the same one moving commodity markets more broadly — see our earlier explainer on gold and silver prices falling ahead of the Fed meeting as oil held near $115.
Growth: FY26 revised to 3.7%, FY27 seen at 3.5–4.5%
Growth was not revised down in the MPC’s range. Revised real GDP growth for FY26 was reported at 3.7%, nearly unchanged from the initial estimate (The Express Tribune). For the year ahead, the committee expects real GDP growth to remain within its earlier projected range of 3.5% to 4.5% during FY27, while warning that the outlook remained vulnerable to further intensification of the Middle East conflict and adverse climate events (Profit by Pakistan Today). Governor Ahmad likewise said economic growth was expected to remain between 3.5% and 4.5% during the current fiscal year (Geo News).
The governor’s projections for the external flows were specific. The central bank expects exports to reach $32.5 billion during the fiscal year, while imports are projected at $71 billion, and workers’ remittances are expected to reach $45 billion (Geo News). He said exports were not at the level required, although there had been an improvement (Geo News).
On activity, the committee said economic activity had started to recover gradually compared with the fourth quarter of FY26, and that large-scale manufacturing output grew by 1.9% year-on-year during July and August FY27, compared with marginal growth of 0.4% in the fourth quarter of FY26 (Profit by Pakistan Today). Private sector credit grew by 14.1% year-on-year, and the MPC expects it to maintain its momentum alongside the projected pickup in economic activity (Profit by Pakistan Today).
What this decision does — and does not — say
First, the vote was not close, and the language was not tentative.
A 9-of-10 majority for a hike, paired with a statement that calls the decision “necessary”, is the committee signalling that waiting had become the riskier option in its judgement. The one thing the statement does not do is promise a path from here: it ties the stance to the inflation outlook and to keeping the real policy rate adequately positive on a forward-looking basis, which leaves the next decision dependent on the same energy and wheat data that drove this one.
Second, the buffers the MPC cited are real but narrow.
Reserves at around $21.5 billion and about three months of import cover, a current account deficit assessed at 0–1% of GDP for FY27, an IMF staff-level agreement reached, and FBR collection 7% higher year-on-year and Rs33 billion above target in Q1-FY27 — those are the figures the committee itself put forward. None of them, in the committee’s own telling, removed the inflation problem, because the problem it identified is price expectations feeding from food and energy into core inflation, which stood at around 8.4% in September.
Third, the timeline back to target has lengthened, by the governor’s own account.
Governor Ahmad said inflation will take longer than planned to return to the target range (TRT World). That admission, alongside a hike delivered while growth is projected at only 3.5–4.5% for FY27, is the clearest measure of how the committee weighed the two risks in front of it on October 26.