State Bank of Pakistan’s Interest Rate Hike Catches Pundits by Surprise – Currency Thoughts

State Bank of Pakistan’s Interest Rate Hike Catches Pundits by Surprise

April 27, 2026

There’s been an unexpected decision by officials at the State Bank of Pakistan to crank up their interest rate to 11.5% from 10.5%. Pakistan’s central bank rate crested at 22.0% for a whole year until June 2024 and as CPI inflation imploded from a 38.0% in May 2023 all the way to just 0.3% in April 2025. By end-2025, inflation had normalized to 5.6%, and the most recent interest rate cut made in December had reduced the rate by a further 50 basis points to 10.5%. In the first quarter of this year, consumer price inflation accelerated to 5.8% in January, 7.0% in February and 7.3% last month, still three percentage points under that interest rate. Being fractionally above the 5-7% inflation target, analysts were not expecting a rate cut, but neither had they forecast an increase, which authorities hadn’t done in over three years.

Today’s statement from central bank officials explaining the reason for today’s full percentage point hike pins the blame on the fallout from the war in Iran.

The prolonging of the Middle East conflict has intensified risks to the macroeconomic outlook. In particular, the global energy prices, freight charges and insurance premiums continue to remain significantly above pre-conflict levels.
Furthermore, the supply chain disruptions have contributed to the prevailing uncertainty. While the incoming data has been broadly in line with the MPC’s expectations so far, the impact of these global developments will be visible in key economic indicators going forward. In this backdrop, the Committee assessed that inflation is likely to increase and remain above the target range in the next few quarters. MPC assessed that the current supply shock may push inflation to double digits in the coming months before it starts to ease subsequently.

Copyright 2026, Larry Greenberg. All rights reserved.

Tags: State Bank of Pakistan

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