The State Bank of Pakistan kept the interest rate unchanged at 11.5 percent on Monday. This marks the third consecutive meeting where the central bank has maintained its current stance. The Monetary Policy Committee will meet next on October 26, 2026.

The MPC pointed to the worsening Middle East conflict as a key factor. This conflict has pushed global commodity prices higher and prolonged supply chain disruptions. However, domestic economic data remained broadly in line with expectations. Headline inflation rose to 11.1 percent year-on-year in August, up from 9.2 percent in July. Meanwhile, core inflation came in slightly lower than analysts expected.

External pressures stayed contained thanks to strong workers’ remittances and higher financial inflows. Additionally, economic activity showed signs of recovery after slowing in the fourth quarter of FY26. Recent indicators, including POL sales and textile exports, pointed to gradual improvement in July.

The committee said the current stance remains appropriate for bringing inflation toward its 5-7 percent target range. However, it noted that uncertainty has increased due to the deteriorating geopolitical situation. Since the last meeting, Moody’s upgraded Pakistan’s sovereign credit rating to B3 with a stable outlook. Pakistan also raised $3 billion through Eurobonds. Foreign exchange reserves climbed to $21.4 billion following continued purchases.

Inflation expectations among businesses and consumers rose in September, though confidence weakened. Large-scale manufacturing output fell 3.5 percent in June, though cumulative FY26 growth held at 5 percent. Fiscal consolidation during FY26 exceeded its budget target. Meanwhile, FBR tax collection stayed on target through July and August of FY27.

The MPC expects real GDP growth to remain within its projected range of 3.5 to 4.5 percent in FY27. The current account deficit in July stayed broadly in line with expectations. Strong remittances and higher IT exports should help contain the deficit within 0 to 1 percent of GDP. The SBP expects reserves to approach three months of import cover by June 2027. Still, the outlook remains vulnerable to global commodity prices and Middle East disruptions.

The committee stressed that fiscal and monetary policies must stay prudent going forward. It also called for accelerated structural reforms, particularly broadening the tax base. On inflation, the MPC attributed August’s rise mainly to higher food and energy prices. Higher fuel costs also pushed core inflation to 8.7 percent. Finally, the bank expects inflation to gradually approach the upper end of its target range by June 2027, though it warned that risks remain elevated.