State Bank of Pakistan Holds Benchmark Interest Rate at 11.5%

The State Bank of Pakistan kept its benchmark interest rate at 11.5 per cent on Monday, pausing monetary adjustments after a divided committee vote.

Seven of the ten Monetary Policy Committee members backed the hold. They resisted calls for an increase after annual headline inflation accelerated to 11.1 per cent in August from 9.2 per cent in July.

Officials attributed the decision to Middle East geopolitical friction, which lifted global oil prices and strained supply chains. Domestic core inflation came in slightly below central bank expectations. Remittance flows and external financing helped stabilize the balance of payments.

Inflation Pressures and Factory Output

Consumer and corporate sentiment deteriorated heading into September as both groups reported higher price expectations. Industrial production softened at the end of the fiscal year. Large-scale manufacturing output fell 3.5 per cent in June, capping cumulative growth for the year ended June 2026 at 5 per cent.

For retail chains and consumer goods manufacturers in Pakistan, elevated borrowing costs continue to weigh on inventory financing and store expansions. Policy settings remain adequate to steer inflation toward the medium-term target band of 5 to 7 per cent, the central bank said.

High interest rates and rising energy tariffs continue to squeeze household disposable incomes in urban retail centers. Consumer businesses face an ongoing margin crunch. Production and transport expenses are climbing faster than shelf prices can adjust.

Foreign Reserves and Fiscal Buffers

State finances found temporary relief through higher non-tax revenue and sovereign debt operations. Moody’s upgraded Pakistan’s sovereign credit rating to B3 with a stable outlook after a 3 billion dollar Eurobond issuance lifted foreign exchange reserves above 21 billion dollars.

Fiscal consolidation beat initial targets after the central bank transferred 1.9 trillion rupees in profit to the federal government, against a budgeted 1.4 trillion rupees. Revenue collection by the Federal Board of Revenue also met targets during July and August.

Shifting Policy Trajectory

Monday’s pause follows a 100-basis-point rate hike in April, the central bank’s first monetary tightening in nearly three years. Before that increase, the benchmark rate held at 10.5 per cent through the first quarter after a surprise 50-basis-point cut in December 2025.

The benchmark rate sits well below the peak of 22 per cent recorded in June 2023. That reflects 1,050 basis points of cumulative easing since mid-2024 as price spikes receded from record highs.

Committee members will review the policy stance again at the next meeting, tracking crude import bills and the September consumer price index.