Wartime Economy Forces SBP to Increase Interest Rate By 1%

KARACHI: (Web Desk) – The State Bank of Pakistan (SBP) has increased its benchmark policy rate by 100 basis points, raising it to 11.5%, in a cautious tightening move amid rising inflation pressures and global oil market volatility.

The decision was taken by the Monetary Policy Committee during a closely balanced meeting, where economists were divided on the likely outcome. A Reuters survey had shown that most analysts expected the rate to remain unchanged, while others anticipated either a moderate or sharper increase.

The hike comes as inflation in Pakistan rose to 7.3% in March, compared to 7% in February, pushing it beyond the central bank’s target range of 5% to 7%. Experts have warned that inflation could edge closer to double digits in the coming months if external economic pressures persist.

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One of the key concerns driving the decision is the instability in global oil prices, largely influenced by geopolitical tensions, including the Iran–US situation, which has kept international markets uncertain and increased pressure on Pakistan’s import bill.

Despite the recent increase, the SBP has significantly reduced interest rates over the past year, cutting them by a cumulative 1,150 basis points since June 2024, when the rate peaked at 22%. The central bank had last reduced rates by 50 basis points in January before this latest adjustment.

Officials say the latest move reflects a careful balancing act between supporting economic growth and controlling inflation while maintaining financial stability.