Pakistan's central bank announced on Monday that it has increased the key policy rate by 100 basis points to 11.5 percent, marking the first rate hike in almost three years. The State Bank of Pakistan (SBP) had previously cut rates by a cumulative 1,150 basis points since June 2024, from a record high of 22 percent.
Reasons for the Rate Hike
The decision to raise the key rate came as rising oil prices resulting from the United States-Iran war threatened to push inflation higher in the South Asian nation. Pakistan's consumer price inflation accelerated to 7.3 percent in March compared to the same period last year, exceeding the central bank's target range of 5 to 7 percent. Some analysts have warned that inflation could approach 10 percent in April.
The Monetary Policy Committee decided to raise the policy rate by 100 basis points to 11.50 percent effective from April 28, 2026, following its meeting held on April 27, 2026, according to an SBP statement.
Market Expectations
A survey conducted by Karachi-based brokerage firm Topline Securities revealed that 53 percent of respondents expected the central bank to hike the interest rate. Among these, 41.2 percent anticipated a 50-100 basis point increase, while 10 percent expected a 25-50 bps hike. Only 2 percent predicted an increase of more than 100 bps. Of the remaining 47 percent, 43 percent expected no change, and 4 percent foresaw a decline of 50-100 bps.
The brokerage firm also noted that 59 percent of respondents expected global oil prices to remain above $80 per barrel. A ceasefire in the Iran-US war has so far failed to produce a lasting peace deal, keeping oil prices elevated.
IMF Program Context
Pakistan is currently on a $7 billion International Monetary Fund (IMF) program. The IMF has previously cautioned against premature easing and urged the central bank to maintain a positive real interest rate. The rate hike is seen as a move to align with these recommendations and curb inflationary pressures.
