The State Bank of Pakistan (SBP) raised its policy rate by 50 basis points to 12 percent on October 26, 2026, reversing its September decision to keep borrowing costs unchanged. The new rate took effect on October 27, as policymakers responded to renewed inflation risks linked to the intensifying conflict in the Middle East and persistently high global energy prices.
The Monetary Policy Committee approved the increase by a vote of nine to one. In its [official monetary policy statement dated October 26](https://www.sbp.org.pk/assets/documents/press-release/PR-26-Oct-2026.pdf), the central bank said the deterioration in the inflation outlook made tighter monetary policy necessary to keep inflation expectations anchored and limit the spread of higher energy and other supply costs into the wider economy.
## What changed in October?
The policy rate had stood at 11.5 percent following the committee's September 14 meeting. At that time, the SBP kept the rate unchanged while assessing domestic economic conditions and rising risks from the Middle East conflict.
The October decision marked a 0.5-percentage-point increase. The SBP also adjusted the interest-rate corridor around the policy rate: the overnight repo floor became 11 percent, while the reverse-repo ceiling became 13 percent.
The policy rate is the central bank's main benchmark for monetary policy. Changes can influence money-market rates, bank funding costs and the pricing of some loans and deposits, although the effect on an individual financial product depends on its terms and the institution providing it.
## Why did the SBP raise rates?
The Monetary Policy Committee said the intensification of the Middle East conflict and the limited prospects for a near-term resolution were keeping global energy prices elevated. Although the domestic impact of the external shock had remained contained so far, the committee judged that the outlook for inflation had worsened.
Pakistan's headline inflation reached 10.3 percent year-on-year in September 2026, while core inflation was around 8.4 percent. The SBP identified higher energy and wheat prices, domestic wheat-supply difficulties, global commodity-price volatility and possible changes in energy tariffs as important risks to the inflation outlook.
The central bank's medium-term inflation target range is 5 to 7 percent. The increase was intended to help bring inflation back within that range, contain second-round effects from supply shocks and preserve macroeconomic stability.
## What did the central bank say about economic growth?
The SBP maintained its projection for real GDP growth of 3.5 to 4.5 percent in fiscal year 2026–27. Its October statement said economic activity was gradually recovering compared with the final quarter of the previous fiscal year.
Industrial output, cement and petroleum-product sales, private-sector credit and purchasing-manager indicators pointed to improving activity. The committee also noted that initial estimates for Kharif crops were better than expected.
However, the bank warned that the outlook remained vulnerable to a further escalation of the Middle East conflict and adverse climate conditions, including risks associated with El Niño.
The October decision therefore reflected a trade-off: tighter monetary policy could help restrain inflation, while the central bank continued to expect a gradual recovery in economic activity.
## What did the SBP say about the external account?
The current account recorded a deficit of US$874 million in the first quarter of fiscal year 2026–27. The SBP said exports were recovering, supported by rice, higher-value-added textiles and services, while workers' remittances remained resilient.
Imports were also rising, led by non-energy products as economic activity improved and prices increased. The central bank assessed that the current-account deficit for the full fiscal year would remain within its previously projected range of zero to 1 percent of GDP, subject to risks from elevated commodity prices, tighter international financial conditions and supply constraints.
The SBP reported that its foreign-exchange reserves remained around US$21.5 billion, equivalent to approximately three months of import cover.
## What does the rate increase mean for borrowers and savers?
The increase raises the benchmark policy rate, but it does not mean that every loan or deposit rate changes immediately by exactly 0.5 percentage points.
Borrowers with floating-rate facilities may face higher financing costs when their contractual reset dates arrive. People considering new borrowing should check the rate, repricing schedule, fees and repayment terms offered by their bank.
For savers, the effect on deposit returns depends on the product, its terms and how the financial institution responds to the policy change. A policy-rate increase alone does not guarantee a corresponding increase in every deposit rate.
Households and businesses should compare actual financing and deposit offers rather than assume that all products move in lockstep with the SBP benchmark.
## What happens next?
The October 26 decision sets the policy rate at 12 percent from October 27, 2026. The SBP's published meeting calendar lists December 14, 2026, as the next scheduled Monetary Policy Committee meeting, although the date may change if the bank announces a revised schedule.
Future policy decisions will depend on incoming inflation and economic data, global energy prices, geopolitical developments, domestic food prices and conditions in the external account.
The October increase does not guarantee that rates will continue rising or that inflation will immediately decline. The central bank's stated objective is to keep inflation expectations anchored and return inflation to its target range while supporting macroeconomic stability.
**Sources:** [State Bank of Pakistan, Monetary Policy Statement, October 26, 2026](https://www.sbp.org.pk/assets/documents/press-release/PR-26-Oct-2026.pdf); [SBP policy-rate and interest-rate corridor notice](https://www.sbp.org.pk/circulars/dmmd-circular-no-04-of-2026); [SBP Monetary Policy Committee calendar](https://www.sbp.org.pk/our-operations/monetary-policy).
