State Bank Holds Rate at 11.5% for Third Straight Meeting as Inflation Rebounds

The State Bank of Pakistan's Monetary Policy Committee (MPC) kept the benchmark policy rate unchanged at 11.5% at its meeting on September 14, 2026, holding steady for a third consecutive meeting as officials weighed a summer rebound in inflation against a fragile but improving external position.

The decision and the vote

The MPC's decision was not unanimous: seven of the committee's ten members voted to hold, with the remainder favouring a different course. The hold extends a pause that began on June 15 and continued on July 27, after the committee had delivered a surprise 100-basis-point hike to 11.5% on April 28 in response to the escalating US-Iran conflict — itself a reversal of the cutting cycle that had brought the rate down to 10.5% by December 16, 2025. In other words, the rate has now sat at the same level for five months, with the committee unwilling to either tighten further or resume easing.

Why inflation is the sticking point

Headline inflation rose to 11.1% year-on-year in August, up from 9.2% in July, moving further above the SBP's 5-7% medium-term target range. That figure capped a volatile year: inflation ran at 11.7% in May and 11.0% in June before easing to 9.2% in July, only to rebound sharply the following month. The MPC's statement pointed to the prolonged Middle East conflict as the primary driver, saying it had intensified in recent weeks, pushing already-elevated global commodity prices higher and prolonging supply-chain disruptions — the same dynamic driving up transport and fuel costs domestically, since regional shipping and oil-market disruption feeds almost directly into Pakistan's import bill. The committee concluded that the current stance remained appropriate to steer inflation back toward its target range, rather than risk a rate cut that could compound an external shock still working its way through the economy.

The case for cutting, and why it didn't win out

Not every MPC member agreed with holding. A minority favoured a different rate path, though the SBP's public statement did not break out how many members preferred a cut versus a hike. The dissent reflects a genuine tension in Pakistan's current economic position: on one hand, an external environment that has visibly improved, with S&P Global upgrading Pakistan's sovereign credit rating to 'B' from 'B-' in July — the first upgrade in nine years — and the government raising a record $3 billion in a two-part bond sale in early September on the back of that improved standing. On the other hand, an inflation trajectory that has refused to settle, making a rate cut a bet that August's spike proves temporary rather than the start of a new upward trend.

What this means for borrowers and the wider economy

A held rate keeps borrowing costs elevated for businesses and consumers alike, continuing to squeeze the same small businesses and households already absorbing Pakistan's broader cost-of-living pressure. Financing costs tied to an 11.5% policy rate make it more expensive for firms to invest or carry inventory, even as the committee's own reasoning suggests it sees little room to ease without risking a fresh inflationary round tied to global energy markets. For a government targeting continued reserve accumulation and debt-market access following its recent credit upgrades, the MPC's preference for prudence over stimulus is consistent with the fiscal-discipline conditions attached to Pakistan's ongoing IMF program review.

What to watch next

The SBP's published FY27 calendar sets the next full press-conference cycle around its October, January and April meetings, meaning markets will not get another detailed read on the committee's thinking until closer to that point, though the MPC itself typically meets on a roughly six-to-eight week cycle between those dates. Whether the rate finally moves — in either direction — will likely hinge on whether August's inflation spike was a one-month blip tied to the Middle East conflict or the start of a more durable trend, and on whether the current ceasefire dynamics in the region hold or deteriorate further.

Build Better Pakistan's Economy Desk tracks the State Bank's monetary policy decisions and their effect on household and business borrowing costs.