Reporting snapshot · 26 October 2026 (Asia/Karachi). The Monetary Policy Committee's decision was published on Monday and takes effect on 27 October, so no closing price, deposit rate or lending rate has yet reflected the new 12 per cent benchmark. The committee published no fresh inflation path for FY27, and the governor described the distance back to the target band only in relative terms.
What the committee decided
The State Bank of Pakistan’s Monetary Policy Committee (MPC) raised the policy rate by 50 basis points to 12 per cent on Monday 26 October 2026, with effect from 27 October, on a vote in which nine of its ten members supported the increase, the bank’s Monetary Policy Statement said.
It is the first increase since the 100 basis point rise to 11.5 per cent in April 2026, and it ends three consecutive holds at that level — in June, in July and then on 14 September, when the committee kept the rate unchanged in line with market expectations, The Express Tribune reported. KhabarWire examined what the July pause was meant to buy.
The committee’s stated reason is the energy shock. Its statement says the intensification of the Middle East conflict and the low prospect of a near-term resolution are keeping global energy prices at persistently elevated levels, and that geopolitical developments have worsened the inflation outlook compared with its earlier assessment, while the external and growth outlooks were broadly unchanged but carried more risk. The decision, it said, was needed to keep inflation expectations anchored, contain second-round effects of the ongoing supply shock and bring inflation within the 5–7 per cent target range.
Governor Jameel Ahmad told reporters in Karachi that crude oil prices hovering around $100 per barrel had increased pressure on domestic prices, that conditions had deteriorated since the September meeting, and that inflation and current-account expectations had both been raised. He added that wheat prices had also risen, Geo News reported.
It is the first policy change since the position KhabarWire reported on 18 October, when Governor Ahmad told investors in Bangkok that reserves had been rebuilt to $21.5 billion without new borrowing and that a staff-level agreement with the International Monetary Fund had been reached. The State Bank of Pakistan tracker follows the central bank’s decisions in sequence.
What changed between September and October
The committee listed four developments since the September meeting that pointed in one direction.
Expectations split. In the latest sentiment surveys, consumers’ inflation expectations rose while business expectations fell, and confidence indicators for both groups weakened.
Inflation came in higher than expected. Elevated energy and wheat prices pushed headline inflation to 10.3 per cent year on year in September, which the statement says “turned out higher than the MPC’s expectation”, while core inflation steadied at an elevated level of around 8.4 per cent. Pakistan’s September consumer price release put the headline print at 10.3 per cent against 11.1 per cent in August.
Other central banks have turned tighter. Major central banks have raised interest rates in the wake of rising inflationary pressures, and the IMF has revised its global inflation projections upward, the committee said.
Domestic output is recovering. Large-scale manufacturing output grew 1.9 per cent year on year in July and August against 0.4 per cent in the fourth quarter of FY26, and cement and POL sales, private sector credit and the purchasing managers’ index pointed the same way. Satellite readings of night-time lights and NO2 emissions supported that reading, and the first official estimates of Kharif crops were better than expected. The committee kept real GDP growth for FY27 at 3.5–4.5 per cent, with risks skewed by the Middle East conflict and worsening El Niño conditions.
The numbers published alongside the decision
The committee’s statement put the current account deficit at $874 million in the first quarter of FY27. Exports are recovering, led by rice, high-value textiles and services, and workers’ remittances have stayed resilient, while imports are rising sharply on non-energy imports. For the full year the committee still expects the deficit to hold at 0–1 per cent of GDP, and it expects higher financial inflows to lift reserves above their current level, which it put at around $21.5 billion, enough to cover three months of imports. At the press conference the governor put full-year exports at $32.5–33 billion, the import bill at about $71 billion and remittances at $44–45 billion, after $10.9 billion arrived in the first quarter, The Express Tribune reported.
The fiscal position is the strongest part of the picture. The committee reported that federal tax collection grew 7.0 per cent year on year in the first quarter of FY27 and beat its target by Rs33 billion, and that with a large transfer of SBP profit and contained spending both the fiscal and primary balances are assessed to remain in surplus for the quarter. Broad money grew 12.7 per cent year on year to 9 October, from 11.4 per cent on 28 August, while private sector credit grew 14.1 per cent, spread across working capital, fixed investment and consumer finance.
What a 12 per cent policy rate means
The committee’s own test for the decision was to keep the real policy rate “adequately positive on a forward-looking basis” — in effect, to keep the benchmark above the inflation it expects. That is the mechanism by which it hopes to stop higher energy and food prices feeding into core inflation, which it says has steadied at around 8.4 per cent but could be pushed higher if food and energy inflation raises expectations further.
The policy rate is an anchor rather than a lending rate. Banks price loans off it, so a 50 basis point rise raises the cost at which they fund themselves and, typically in part and with a lag, the rates they charge and the deposit rates they offer. The sequencing is what the committee is betting on: borrowing costs move first, price pressures ease later.
Equities had already been moving on the expectation of a hike. At midday on Monday, before the decision, the KSE-100 was down 714.63 points, or 0.44 per cent, at 161,660.24, with banks, cement, automobile assemblers, refineries and oil marketing companies leading the selling, The Express Tribune reported. The announcement came after that session’s trading, so no closing price yet reflects the new benchmark.
What is still uncertain
The committee published no new FY27 inflation forecast, and the governor said only that assessments made in July and August had suggested inflation would sit around 7 per cent towards the end of the year, that recent developments had altered that outlook, and that returning to the anticipated level would now take longer, The Express Tribune reported. It also did not say whether it expects to move again.
The external account is the most fragile part of the forecast. On the governor’s own figures, an import bill of about $71 billion against exports of $32.5–33 billion leaves little room if crude stays near $100 a barrel, and the committee itself lists elevated global commodity prices, tightening international financial conditions and supply constraints among the risks to its own projection.
The IMF programme has its own clock. The staff-level agreement was reached, as the statement records, but the Executive Board’s consideration of the fourth review and the related disbursements remain a separate decision that has not been taken. And the pass-through from the policy rate to actual bank lending and deposit rates — how much of the increase reaches borrowers, and how quickly — is not something the committee controls or has yet quantified.
