Pakistan Central Bank Holds Key Rate at 11.5% for Third Straight Meeting

Pakistan's central bank left its benchmark interest rate unchanged at 11.5% for a third consecutive meeting, with policymakers opting for caution as inflation accelerated and risks linked to the Middle East conflict persisted.

The Monetary Policy Committee decided by a 7-3 vote to hold the rate, noting that the intensifying conflict in the Middle East had driven already-high global commodity prices higher and worsened supply-chain disruptions, even as domestic economic data largely matched its expectations.

The State Bank of Pakistan said it expects economic growth to remain within its earlier projection of 3.5% to 4.5% for the fiscal year ending June 2027. It also expects inflation to ease gradually towards the upper end of its 5% to 7% medium-term target by then, while cautioning that the risks to the outlook have risen significantly.

Renewed hostilities between the United States and Iran, along with the threat of disruption to shipping through the Strait of Hormuz, have kept oil prices elevated, increasing import costs for Pakistan, which depends heavily on energy imports.

Headline inflation climbed to 11.15% year-on-year in August from 9.2% in July, more than tripling from a year earlier and moving further above the central bank's target. Core inflation, which strips out volatile food and energy prices, rose to 8.7% in August, partly on higher fuel-related transport costs.

The central bank said workers' remittances and stronger exports of information and communication technology were expected to keep the current account deficit between zero and 1% of gross domestic product in fiscal 2027.

The SBP also said Moody's had upgraded Pakistan's sovereign credit rating to B3, and that a $3 billion Eurobond sale along with continued foreign currency purchases had lifted reserves to $21.4 billion. It expects reserves to reach the equivalent of three months' worth of import cover by the end of June 2027, though it said the outlook remains susceptible to elevated global commodity prices and supply constraints amid the Middle East conflict.

The central bank has held its benchmark rate steady since raising it by 100 basis points in April, its first increase in nearly three years, following a surprise 50 bps cut in December 2025 and holds in January and March.

Eight of nine analysts surveyed last week had expected the SBP to keep its main rate at 11.5%, while one had forecast a 50 bps increase to 12%.

Pakistan remains in a $7 billion, 37-month Extended Fund Facility arrangement with the International Monetary Fund, as well as a $1.4 billion Resilience and Sustainability Facility arrangement, with a Fund mission due to conduct reviews for a fourth tranche.