The State Bank of Pakistan (SBP) on Monday raised its policy rate by 50 basis points to 12 percent, with Governor Jameel Ahmad maintaining that export stagnation was not linked to interest rates, citing concessional financing and performance-based incentives available to exporters.
The Monetary Policy Committee (MPC) increased the rate from 11.5pc to 12pc, with nine of its 10 members voting in favour of the decision, effective October 27, 2026.
Explaining the decision, Ahmad said escalating geopolitical tensions in the Middle East, persistently elevated global energy prices and domestic wheat supply disruptions had worsened the inflation outlook, necessitating a monetary policy response.
Addressing concerns over higher borrowing costs and export competitiveness, the governor said the stagnation in exports could not be attributed to interest rates alone.
“The stagnation in exports has no relationship with the interest rate anymore,” he said, referring to the SBP’s Export Refinance Scheme, which provides short-term financing to exporters at a concessional rate of 4.5pc.
Ahmad said the scheme’s financing limit had been increased from Rs1 trillion to Rs1.5 trillion. Exporters could also benefit from a performance-based incentive programme under which those increasing exports by 10pc compared with the previous year qualify for a 1pc quarterly incentive.
He added that the central bank remained willing to coordinate with exporters to address regulatory obstacles affecting their businesses. Pakistan’s goods exports stood at $30.8 billion during the previous fiscal year and are projected to increase to between $32.5bn and $33bn in FY27. Imports, meanwhile, are expected to rise from $70bn to approximately $71bn, potentially putting additional pressure on the external account.
The governor projected workers’ remittances at $45bn, up from the earlier estimate of $44bn, supported by a government scheme encouraging inflows. Remittances totalled $10.9bn during the first quarter of FY27.
Despite the expected improvement in exports and remittances, Pakistan recorded a current account deficit of $874 million during the first quarter of FY27, which Ahmad attributed to geopolitical factors. The deficit is projected to remain between zero and 1pc of GDP during the current fiscal year, although higher global commodity prices and rising imports pose risks.
Headline inflation reached 10.3pc year-on-year in September, higher than anticipated, while core inflation remained elevated at around 8.4pc. Ahmad said the rate increase was necessary to anchor inflation expectations, contain the second-round effects of supply shocks and bring inflation within the medium-term target range of 5-7pc.
Despite external risks, the SBP retained its GDP growth forecast of 3.5-4.5pc for FY27, following estimated growth of 3.7pc in FY26. Foreign exchange reserves are projected to reach $23bn by December 2026 and $25bn by June 2027.
Meanwhile, the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) strongly denounced the rate hike, terming it counterproductive to industrial growth. The decision reflects the SBP’s attempt to contain inflation while sustaining economic recovery through targeted export financing and performance-linked incentives amid tighter monetary conditions.