SBP raises interest rate amid inflation fears and global tensions

The State Bank of Pakistan (SBP) has increased its key policy rate by 100 basis points to 11.50%, citing rising inflation risks linked to escalating global tensions, particularly the ongoing Israel-US conflict with Iran.

The decision, announced after a meeting of the Monetary Policy Committee (MPC), surprised market analysts who had expected rates to remain unchanged or continue on a downward path. The central bank attributed the hike to growing global uncertainty, including the closure of the Strait of Hormuz, which has disrupted oil supplies and pushed up energy prices, freight costs, and insurance premiums.

The SBP warned that these developments are likely to fuel inflation in the coming months, making it necessary to adopt a tighter monetary policy to stabilise expectations and prevent further price increases. According to official data, inflation has already begun rising, with headline inflation reaching 7.3% and core inflation 7.8% in March.

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However, the move has drawn criticism from the business community. The Pakistan Business Forum (PBF) termed the decision “beyond understanding,” arguing that higher borrowing costs could hurt investment and slow economic recovery. Business leaders warned that increased interest rates would make it more difficult for companies to expand and access credit.

Despite inflation concerns, the SBP noted that the economy has shown some resilience. Pakistan’s GDP grew by 3.8% in the first half of the current fiscal year, supported by improvements in key sectors and steady private sector activity.

The central bank emphasised the need for a balanced approach, combining monetary tightening with fiscal discipline and structural reforms. It also cautioned that the economic outlook remains uncertain, largely dependent on global developments, energy prices, and regional geopolitical stability.