MediumIV Macro Policy & Sovereign Debt14 September 2026, Monday
State Bank of Pakistan leaves its policy rate at 11.5% as inflation rises to 11.1% in August amid Middle East risks
The SBP Monetary Policy Committee held the rate for a second consecutive time on 14 September. The decision was taken by 7 of 10 members. Headline inflation rose from 9.2% in July to 11.1% in August.
The State Bank of Pakistan (SBP) left its policy rate unchanged at 11.5% on 14 September. According to 24News HD, the decision was taken by 7 votes on the 10-member committee; core inflation stands at 8.7% and private-sector credit growth at 13.4% year on year. The committee maintained its growth forecast of 3.5–4.5% for fiscal year 2027 and its medium-term inflation target of 5–7%, but stressed that inflation risks had risen markedly. According to the Express Tribune, total liquid reserves stood at 23.7 billion dollars as of 4 September, of which 18.3 billion dollars was held by the SBP. 24News, however, puts reserves at 21.4 billion dollars. The monthly trade deficit averaged 3.3 billion dollars in April–July. The next meeting is on 26 October.
The decision shows how the war in the Gulf is squeezing oil-importing economies dependent on external financing, such as Pakistan. As long as oil and freight prices stay high, rate cuts cannot be made. Imports rising to about 6 billion dollars a month while exports stagnate are straining the current account. Moody's upgrade of the rating to B3 and a 3 billion dollar Eurobond issue have strengthened buffers. However, ahead of the IMF review at the end of September, tight monetary policy is keeping interest expenditure in the budget high and holding back growth by raising the cost of credit.
Talay assessment
Bottom line
The SBP holding rates with 7 of 10 members in favour shows that the easing cycle is effectively on pause as inflation jumps to 11.1% and the import bill grows. With the policy rate only slightly above headline inflation, expecting easing before the end-September IMF review and the course of the Gulf war become clearer is unrealistic. Another hold on 26 October is the most likely outcome; if the oil shock deepens, a hike is more likely than a cut.
Likely effects
- Pakistan's external balanceNegative1–6 months
Imports of around 6 billion dollars a month and an average trade deficit of 3.3 billion dollars put pressure on reserves while oil stays high; the Eurobond issue and the rating upgrade strengthen buffers, but fragility persists.
- Growth and public financesNegative1–6 months
Tight monetary policy keeps budget interest costs high and raises borrowing costs; the 3.5–4.5% growth target carries downside risk depending on oil and freight prices.
Possibilities, ranked
- 1Another hold on 26 October70%
Inflation is high but not out of control; the SBP keeps 11.5% after the IMF review as well.
Watch: September inflation staying around 11% and the IMF review concluding smoothly.
- 2Rate hike20%
A deepening oil and freight shock accelerates inflation, reserves fall and the SBP turns to tightening.
Watch: Headline inflation rising well above 11.1% and SBP reserves dropping below 18.3 billion dollars.
- 3Rate cut10%
Falling oil prices bring inflation down quickly and the SBP returns to cuts to support growth.
Watch: Headline inflation easing back towards July's 9.2% and a clear decline in Brent.
Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.