Pakistan's central bank holds key rate at 11.5%

Pakistan's central bank, the State Bank of Pakistan (SBP), maintained its key interest rate at 11.5% for a third consecutive meeting on Monday. This decision came amidst a surge in inflation and unresolved risks stemming from the Middle East conflict, prompting policymakers to hold off on any changes. The SBP has kept the rate unchanged since raising it by 100 basis points in April, marking its first increase in nearly three years.

Prior decisions included a surprise 50 basis point cut in December 2025, followed by hikes in January and March. Eight out of nine analysts surveyed by Reuters anticipated the SBP would keep the rate at 11.5%, while one had predicted a 50 basis point increase to 12%. Headline inflation rose to 11.15% year-on-year in August, up from 9.2% in July, reflecting a more than tripling from 3.1% a year earlier and surpassing the SBP's 5%-7% medium-term target.

Ongoing tensions between the US and Iran, coupled with the risk of disruption to shipping through the Strait of Hormuz, have contributed to elevated oil prices, exacerbating import costs in energy-dependent Pakistan. The nation continues to manage a $7 billion, 37-month IMF Extended Fund Facility, alongside a $1.4 billion Resilience and Sustainability Facility, with an IMF mission set to conduct evaluations for a fourth tranche.