The State Bank of Pakistan’s Monetary Policy Committee (MPC) has decided to keep the country’s key policy rate unchanged at 11.5%, maintaining the rate at its current level amid rising inflation and increased uncertainty in the global economic environment. The decision was taken by a majority of seven out of ten MPC members at its September 14, 2026 meeting. The central bank’s latest decision comes as escalating tensions in the Middle East have pushed global commodity prices higher, particularly oil, while continued supply chain disruptions have added uncertainty to the inflation outlook.
According to the MPC, recent domestic macroeconomic indicators have remained broadly in line with expectations, although inflationary pressures have increased. Headline inflation rose to 11.1% year-on-year in August 2026, compared with 9.2% in July. At the same time, core inflation was slightly below the level anticipated by the committee. The MPC said the existing monetary policy stance remains appropriate for guiding inflation toward its medium-term target range of 5% to 7%. However, it highlighted that uncertainty around the outlook has increased, particularly because of the worsening geopolitical environment and its potential impact on commodity prices and domestic economic conditions.
The committee also pointed to improvements in Pakistan’s external position. External account pressures remained contained, supported by strong workers’ remittances and increased financial inflows. The MPC noted that Pakistan had returned to international capital markets and raised $3 billion through Eurobond issuance, contributing to an increase in foreign exchange reserves to more than $21 billion. The committee also highlighted the recent upgrade of Pakistan’s sovereign credit rating to B3 with a stable outlook by Moody’s as another important development since its previous monetary policy meeting.
Domestic economic activity has also shown signs of improvement, according to the central bank. The MPC said recent high-frequency indicators reflected a pickup in economic activity, although large-scale manufacturing remained an area of concern. Large-scale manufacturing output declined by 3.5% in June, while cumulative growth for fiscal year 2026 stood at 5%. The committee also noted that fiscal consolidation during FY26 exceeded the budgetary target, while Federal Board of Revenue collection remained on target during July and August of FY27. These developments were considered alongside the broader fiscal and monetary conditions affecting the country’s economic outlook.
The MPC further highlighted developments in government finances, noting that the State Bank transferred Rs1.9 trillion in profit to the government, exceeding the budgeted amount of Rs1.4 trillion. At the same time, inflation expectations among both businesses and consumers increased during September, while confidence weakened. These developments indicate that although some economic indicators have improved, inflation expectations and external risks remain important considerations for monetary policy decisions.
The central bank also warned that geopolitical developments and weather-related disruptions have become more frequent, creating additional risks for Pakistan’s macroeconomic outlook. The MPC said it would continue to monitor incoming economic data and developments in the Middle East while maintaining its focus on price stability. It stressed the importance of a prudent combination of monetary and fiscal policies, along with further strengthening of economic buffers to help the country absorb potential supply shocks.
The latest decision was broadly in line with expectations among bankers, who had anticipated that the central bank would maintain the policy rate at 11.5%. Some analysts, however, had expected a possible 50-basis-point increase because of rising global energy prices and supply-side risks. The SBP had previously raised the policy rate by 100 basis points in April, marking its first increase in almost three years. Before that increase, the rate had remained at 10.5% during January and March following a surprise 50-basis-point reduction in December 2025.
The latest decision also keeps the policy rate well below the record 22% reached in June 2023. Since mid-2024, the SBP has reduced the key rate by a cumulative 1,050 basis points as inflation declined sharply from the multi-decade highs recorded during the earlier period. With the rate now unchanged, the central bank is maintaining its current stance while assessing whether rising inflation, international energy prices and geopolitical uncertainty could create renewed pressure on Pakistan’s economic stability.
Follow the PakBanker Whatsapp Channel for updates across Pakistan’s banking ecosystem.