SBP policy rate raised to 12%: State Bank's first hike since spring, and why

It happened as expected. The State Bank of Pakistan raised its policy rate by 50 basis points to 12% on Monday, 26 October, ending months of holding at 11.5%. This morning we looked at what a hike would mean for your loans and savings; now the decision and the reasons are out.

Governor Jameel Ahmad announced it at a press conference in Karachi. Nine of the ten Monetary Policy Committee members voted for the rise, and Dawn reported that the one dissenter wanted a bigger increase, not a smaller one.

Why did the SBP raise interest rates?

Oil and war, mainly. “Geopolitical conditions have led to an increase in energy prices,” the governor said, as quoted by Geo News. The committee said the Middle East conflict and weak chances of an early settlement were keeping energy prices high, and that domestic wheat supply problems would keep food inflation up for the next few months.

Its worry is that pricier fuel and flour leak into everything else. Inflation was 10.3% in September, down from 11% in August but above what the committee had expected, and core inflation was about 8.4%, according to Geo. The official target is 5 to 7%, and Ahmad said it would now take longer than planned to get there.

The new numbers from the State Bank

• Growth: 3.5% to 4.5% for the year ending June 2027; Dawn reported a revised estimate of 3.7%.
• Reserves: about $21.5 billion, roughly three months of imports (Geo).
• Remittances: forecast at $45 billion, up from $44 billion.
• Imports: about $71 billion; exports about $32.5 billion.
• Current account: a deficit of $874 million in July to September, expected to stay within 0 to 1% of GDP.

The governor also pointed to the staff-level agreement with the IMF and tax collection that beat its first-quarter target by Rs33 billion.

What changes for you

Car loans, house finance, credit cards and running finance are linked to KIBOR, which tends to follow the policy rate, so new monthly instalments on floating-rate loans should creep up. Savers get the other side: bank deposit and National Savings rates usually adjust upward after a hike, though not overnight.

For business, the message is that cheap credit is not coming back soon. The SBP had cut rates sharply from a record 22% in 2023, then reversed course in April with a 100-point rise when the Middle East war pushed oil up. Topline Securities told Dawn the move was in line with its expectations.

The committee said it would keep watching oil, wheat and possible changes to power and gas tariffs. Any fresh jump in fuel prices before the next meeting would make another hike more likely.