KARACHI: The State Bank of Pakistan (SBP) on Monday raised its policy rate by 50 basis points to 12% from 11.5%, citing inflation risks from persistently high global energy prices.
The increase takes effect on Tuesday. Nine of the Monetary Policy Committee’s (MPC) 10 members supported the decision.
SBP Governor Jameel Ahmad announced the move after the committee’s meeting in Karachi. He said conditions had deteriorated since September’s review, with somewhat higher expectations for inflation and the current account deficit.
The committee said the intensifying Middle East conflict and limited prospects for an early resolution were keeping energy prices elevated. Higher wheat prices added to domestic inflation pressures.
September’s headline inflation stood at 10.3% year-on-year, above the MPC’s expectations. Core inflation remained around 8.4%.
Policymakers warned that sustained increases in food and energy prices could raise inflation expectations and eventually spill over into underlying prices. They identified commodity-market volatility, potential energy tariff adjustments, further wheat price increases and adverse weather as risks.
Meanwhile, the central bank projected economic growth of 3.5%–4.5% for FY2026-27 (July–June).
Ahmad acknowledged that exports remained below the required level despite some improvement. He projected annual exports of $32.5 billion and imports of $71 billion, while workers’ remittances were expected to reach $45 billion.
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Pakistan recorded a current account deficit of $874 million during July–September. Export recovery was supported by rice, higher-value textiles and services, while remittances remained resilient. However, imports were also increasing, driven by non-energy purchases, recovering economic activity and higher prices.
SBP retained its forecast for a current account deficit of 0%–1% of gross domestic product in FY27. It anticipated that financial inflows would help strengthen its foreign exchange reserves.
Reserves stood at around $21.5 billion, equivalent to approximately three months of import cover. Continued foreign exchange purchases supported that position.
On the fiscal side, Federal Board of Revenue collections increased 7% year-on-year in the first quarter and exceeded the target by Rs33 billion. Officials assessed that both the overall fiscal balance and primary balance remained in surplus.
Nevertheless, the MPC warned that the regional conflict had complicated fiscal management. It called for stronger fiscal discipline, a broader tax base and faster structural reforms.
