The State Bank of Pakistan has increased the interest rate by 1%, marking its first rate hike in two years as the economic impact of the Iran-US war reshapes the country’s monetary policy direction.
Experts say the war and its negative effects have changed the State Bank’s thinking on interest rates, blocking Pakistan’s path toward bringing rates back into single digits.
This is the first increase in interest rates after two years. Over the past two years, interest rates had gradually fallen from 22% to 10.5%. The latest decision signals a major shift in the central bank’s policy direction.
Iran-US war affects policy
The Iran-US war has become a major obstacle in Pakistan’s efforts to bring interest rates into single digits. According to experts, the war and its negative economic effects have changed the State Bank’s approach toward interest rates.
The conflict has added uncertainty to Pakistan’s economic outlook and created fresh pressure on monetary policy.
Inflation outlook in Pakistan
Experts say Pakistan’s inflation outlook has changed, forcing the State Bank to revise its policy stance. The shift comes at a time when external pressures linked to the Middle East conflict are affecting economic expectations.
As a result, the State Bank has moved away from its earlier approach of reducing or maintaining interest rates.
According to the report, the State Bank had been reducing or maintaining interest rates since April 2024. During that period, interest rates dropped from a peak of 22% to 10.5%.
However, the latest hike shows that the central bank now sees renewed risks to inflation and economic stability.
