The State Bank of Pakistan (SBP) on Monday raised the key policy rate by 50 basis points to 12 per cent, its first increase since April as inflation, fuelled by high energy costs due to the Gulf conflict, remained above target.

In a statement, the Monetary Policy Committee (MPC) said it had decided to increase the policy rate, with a majority decision of nine out of ten members.

It noted that the “intensification in the Middle East conflict and low prospects of its near-term resolution” were keeping global energy prices at persistently elevated levels.

“While the impact of this global shock on the domestic economy has remained contained so far amidst proactive monetary policy adjustment and continued fiscal discipline, geopolitical developments have worsened the inflation outlook as compared to the earlier assessment,” it said.

It went on to say that although the external account and growth outlook remained broadly unchanged, risks had also increased.

“Considering these developments and the evolving risks, the MPC deemed today’s decision as necessary to keep inflation expectations anchored, contain second-round effects of the ongoing supply shock and bring inflation within the target range of 5-7pc. This will help preserve macroeconomic stability, which is necessary for sustainable economic growth,” it said.

It said that forex reserves had remained stable at around $21bn, Pakistan had reached a staff-level agreement with the International Monetary Fund (IMF) and that real gross domestic product (GDP) growth had been revised at 3.7pc, almost unchanged from the initial estimate.

It further said that the Federal Board of Revenue had exceeded its revenue collection target during the first quarter of the current fiscal year, major central banks had raised interest rates in the wake of rising inflationary pressures and the IMF had also revised its global inflation projections upwards.

“While noting these developments and the increasing frequency of global supply shocks, the MPC emphasized the importance of increasing external and fiscal buffers to further strengthen the economy’s resilience. The committee also reiterated that continuing the prudent monetary and fiscal policy mix, alongside timely implementation of structural reforms, is essential for achieving higher and sustainable economic growth,” the statement said.

Regarding inflation, which eased to 10.3pc in September from 11pc in Augus, the MPC said that the re-escalation in the Middle East conflict and domestic wheat supply frictions were two major factors keeping inflation at elevated levels

It said that their expected continuation over the next few months had “worsened the inflation outlook”. It added that there was a risk that elevated food and energy inflation may further increase inflation expectations, which may seep into core inflation going forward.

“In view of these developments and increasing risks to the inflation outlook, the committee assessed today’s decision as important to keep the real policy rate adequately positive on forward-looking basis. This is necessary to bring inflation within the target range over the medium term. The inflation outlook is subject to multiple risks, including geopolitical tensions, global commodity price volatility, unanticipated adjustments in energy tariffs, further uptick in wheat and allied product prices and adverse weather conditions,” it said.

Regarding the external sector, the statement said that exports were recovering, adding that remittances had remained resilient and were projected to turn out higher than the earlier assessment.

It said that the current account deficit in FY27 was assessed to remain within the earlier projected range of 0-1pc of GDP.

“This, along with higher financial inflows, is expected to increase SBP’s FX reserves beyond the current level. This outlook, however, remains susceptible to multiple risks, including elevated global commodity prices, tightening international financial conditions, and supply constraints,” it said.

As per the statement, the committee expected GDP growth to remain within previously projected ranges of 3.5pc to 4.5pc in FY27. However, it added that the outlook was susceptible to risks from escalation in the Middle East conflict and adverse climate events such as El Niño conditions.

SBP governor cites inflationary outlook

SBP Governor Jameel Ahmed also addressed a press conference to announce the decision and said there were many “underlying factors” behind the decision, especially the inflation outlook.

He cited the US-Israel war on Iran and its impact on energy and oil prices, developments in the domestic market and the subsequent impact on inflation.

He said that nine out of ten MPC members voted to raise the policy rate, while one member had a different view; they were of the opinion that it should be raised further.

He said that consumer expectations and other forecasters’ views were taken into consideration, as well as other macro factors, especially the impact of global commodity and oil prices on the external account and the impact of remittances and export trends.

Ahmed noted a deterioration in the current account since the last MPC meeting. However, he added: “The good thing is that its impact is still between zero and one per cent of GDP and it will stay between that.”

He also shared that the central bank revised its outlook on remittances, from $44 billion to $45bn. On exports, the SBP governor said the trend was witnessing an improvement; however, it was not yet in line with the economy’s needs. He added that the bank estimated imports to be close to $71bn.

He said it would take longer than planned for inflation to get within the target range and revised GDP growth to 3.7pc for the current fiscal year ending June 30, 2027.

Meanwhile, Topline Securities said the central bank had raised the policy rate “in line with our expectations”.

Previously, the policy rate was 11.5pc. The central bank had held the rate steady since raising it by 100 basis points in April in response to rising global energy prices and supply chain risks — its first increase in nearly three years.

The SBP has cut the key rate by a cumulative 1,050 basis points since mid-2024, from a record 22pc reached in June 2023, as inflation cooled sharply from multi-decade highs.

Last week, the IMF called for Pakistan’s fiscal policy to go beyond achieving primary balance targets and protecting debt sustainability by reinforcing policy credibility, fostering economic recovery and creating space for public investment and social spending to support stronger long-term growth.

Additional input from Reuters

The Foreign Office (FO) on Monday rejected allegations made by the Afghan Taliban government regarding civilian casualties in Islamabad’s counterterrorism campaign in the neighbouring country, maintaining that Pakistan’s conduct always “reflected restraint” and the response was “proportionate to the level of threat”.

The Afghan Taliban have repeatedly claimed civilian casualties in Pakistani strikes in Afghanistan; Pakistani authorities have denied the accusations, holding that they target military and terrorist infrastructure.

Recently, a spokesperson for the Afghan Ministry of Foreign Affairs claimed in an interview with CNN that 1,119 Afghan civilians were killed or injured in Pakistani military strikes in Afghanistan since late 2021, according to Afghan media.

In a statement issued on Monday, the FO rejected the “baseless and unsubstantiated” allegations regarding civilian casualties attributed to Pakistan’s counterterrorism operations.

“Disinformation and misleading narratives will neither obscure the threat posed by the terrorist networks operating from Afghan territory nor absolve the Afghan Taliban regime of its responsibility to prevent Afghan soil from being used to plan and launch attacks against Pakistan,” the FO said, adding that attacks emanating from Afghan soil had claimed more than 3,500 casualties in 2026.

It further said that various relevant United Nations mechanisms had reported the situation as well, and the issue had been raised as a serious concern for the international community.

The FO noted that the Afghan Taliban continued to “shelter with impunity a large number of terrorist organisations, including the Tehreek-i-Taliban Pakistan (TTP), the Balochistan Liberation Army (BLA) and their affiliates, which continue to pose a serious threat to the peace and stability of the region and beyond”.

It said that thousands of Pakistani civilians had been martyred in terrorist attacks, which it said were “planned, financed, supported and carried out” from Afghan soil under the “watch, patronage and active facilitation” of the Afghan Taliban.

“No responsible state can remain passive when its civilians and security forces are repeatedly targeted,” the statement read.

It maintained that Pakistan’s actions in response to terrorist attacks had been undertaken in exercise of self-defence, according to the principles of necessity and as a last resort.

The FO further stated that the actions were “directed only and exclusively against terrorists and their logistical support bases in Afghanistan”. The statement stressed that Pakistan’s response had been “proportionate to the level of threat” and adhered to the principles of “distinction and precaution”.

“The scale and scope of the action reflected restraint, particularly in light of the severity and frequency of terrorist attacks faced by Pakistan. Pakistan rejects any insinuations otherwise,” it said.

The FO called on the international community to hold the Afghan Taliban regime accountable for “failure to uphold obligations” under various international commitments.

“Pakistan reserves the right to take all necessary measures in order to safeguard its sovereignty, territorial integrity, and the safety and security of Pakistani nationals,” it said.

According to a UN Security Council-mandated monitoring report — covering the period from Dec 16, 2025 to June 9, 2026 — the Afg­han Taliban’s continued support for TTP has contributed to a rise in the frequency and lethality of terrorist attacks in Pakistan, even as Kabul has taken some initial steps to rein in the group.

Ties between Pakistan and Afghanistan have been strained in the past few years as Islamabad continues to voice its concern over cross-border terrorism.

Islamabad has repeatedly urged the Taliban administration in Kabul to dismantle terrorist sanctuaries on Afghan soil, particularly those linked to the banned TTP, that are used for attacks in Pakistan. Officials say those appeals have gone unheeded.

September witnessed another bout of conflict between the two neighbours, with Pakistan carrying out calibrated airstrikes in the border region in response to terrorist attacks in Khyber Pakhtunkhwa.

This was followed by drone incursions from across the border, which Islamabad said were shot down, and two further rounds of retaliatory airstrikes.

Over the weekend, the information ministry rejected former United States envoy Zalmay Khalilzad’s “baseless and misleading allegations” that Pakistan was “arming Afghans to fight the Taliban”.

It also rebutted the Afghan Taliban’s stance that it lacked the “capabilities” to fuel insecurity in other countries and criticised it for resorting to “diversionary allegations” instead of preventing the use of Afghanistan’s soil for terrorist attacks against Pakistan.

Pakistan on Monday condemned Houthi missile attacks targeting Saudi Arabia’s Makkah and Madina regions, terming them a “grave violation” of the kingdom’s sovereignty and territorial integrity.

According to a statement issued by the Foreign Office (FO), these “reprehensible attacks constitute a grave violation of Saudi Arabia’s sovereignty and territorial integrity and demonstrate a blatant disregard for the sanctity of Islam’s holiest sites and the safety of civilians”.

Pakistan reiterated its “unwavering solidarity” with Saudi Arabia and its firm commitment to the Makkah Alliance, the FO said.

It reaffirmed its steadfast support for the kingdom’s security, stability and defence, including the protection of the Two Holy Mosques against any external aggression or threat.

Pakistan also commended the “vigilance and efficiency” of Saudi air defence forces in countering the attacks, it said.

A day earlier, the Muslim World League also condemned Houthi attacks targeting Makkah and Madina.

In a statement, the Makkah-based organisation said the attacks showed “disregard for the danger of frightening the feelings of more than two billion Muslims, and the violation of the values of our true religion, and the most basic principles of humanity”.

The condemnations came after the Houthis said they had launched attacks on Saudi oil facilities and airports on Saturday, prompting the Saudi-led coalition fighting the Yemen rebel group to announce that it had intercepted two ballistic missiles as clashes between the sides intensified.

Houthi military spokesperson Yahya Saree said the group had targeted King Khalid International Airport in Riyadh, an Aramco facility in Yanbu, the Rabigh oil refinery, crude oil pumping stations and the East-West Pipeline.

He also said the group had targeted King Fahd International Airport in Dammam, an airport in Najran and an airbase in Khamis Mushait.

The Saudi-led coalition said it had destroyed two ballistic missiles fired towards Yanbu and Taif.

Saudi Civil Defence said debris from intercepted missiles had fallen in the Makkah and Madina regions. It said fragments of intercepted missiles had fallen in Wadi al-Mughammas in Makkah, as well as in areas of Jeddah, Taif and Rabigh.

The Houthis subsequently denied targeting Makkah and Madina, saying their operations were directed at “Saudi oil facilities and military bases”.

The renewed fighting has shattered a UN-brokered truce reached in 2022 that largely halted cross-border attacks between the Saudi-led coalition, which backs Yemen’s internationally recognised government, and the Houthis, who control the capital, Sanaa.

Jamaat-i-Islami (JI) Emir Hafiz Naeemur Rehman on Monday warned that the party would march to Islamabad in mid-November if Prime Minister Shehbaz Sharif did not abolish the petroleum levy.

The JI has been demanding for over two months that the Centre abolish levies, including Rs114 per litre on petrol and Rs100 per litre on diesel, as the total prices have skyrocketed due to conflicts in the Middle East since March.

A day earlier, the party said Planning Minister Ahsan Iqbal and Special Assistant to PM Rana Sanaullah contacted JI Vice Emir Liaquat Baloch and it was decided that a meeting between the JI chief and Prime Minister Shehbaz Sharif will be held within the “next two days”.

Addressing a press conference on Monday, Rehman said that JI had been patient and acted responsibly, considering the state of international affairs.

He added, “Now, the responsible thing to do is for us to be aggressive.”

“If the prime minister does not provide relief or abolish the petroleum levy, if he doesn’t take any steps, then in mid-November we will, with full force, march to Islamabad.”

He suggested that the government accept the issues and “handle” them beforehand by providing relief to the people of Pakistan.

Rehman said his party remained prepared to march towards Islamabad and recalled that federal ministers had contacted the party repeatedly.

“Liaquat Baloch Sahib has told them that nothing will come out of talks until something tangible is given,” he said.

However, Rehman acknowledged that the government had assured JI of “doing working” on the issue and “decide what can be achieved in the meeting with the prime minister”.

The JI chief reiterated that his party will continue to stand by the demand.

“We have told them the levy has nothing do with petrol’s price,” he said.

Rehman wondered what could “federal ministers possibly tell prime minister about the issue” considering that the party had already submitted its demands.

“We have never said no to a meeting but I want to say this clearly to the government that we don’t want a meeting so we can make an event out of it,” he said.

The JI leader also criticised the relief package announced by the government in September, claiming that it was brought about as a result of JI’s protests in 42 cities.

The “relief scheme” was announced for users of motorcycles, autos and vehicles of up to 800cc to “alleviate the burden” of rising global oil prices.

Under the scheme, those having two-wheeled and three-wheeled vehicles would get a relief of Rs100 per litre on a monthly quota of 20 litres, while those owning small vehicles of up to 800cc would get a relief of Rs100 per litre for a monthly quota of 30 litres.

Rehman on Monday said that the scheme was not enough for those, claiming that it did not cover various other motorcyclists, car owners or public transport.

He further said the package did not address soaring prices of groceries and goods due to rising diesel costs.

“Large political parties don’t even talk about nation’s genuine issues,” he claimed, adding that only JI had highlighted the concerns.

Last week, JI said it would hold talks with the government regarding its demand to abolish the petroleum levy and on further high-level contacts between them.

According to the statement, despite the planned talks, JI’s Baloch reiterated his party’s call for countrywide protests.

On Aug 16, the JI announced sit-ins in all the provincial capitals of Pakistan against the petroleum levy and had called for a nationwide strike on Sept 3.

However, when the day arrived, the two sides agreed to form committees to recommend measures to reduce the levies.

On Sept 20, the party launched a protest march towards Islamabad, warning that if the government failed to abolish the petroleum levy, the protest could turn into one to oust the government.

On Sept 22, the JI emir said his party, whose convoy had reached Multan, was postponing its long march at the request of PM Shehbaz, who had assured the other side of a meeting to discuss the matters.

However, in a press release issued last week, JI alleged that the government had made no further contact regarding the planned meeting between Rehman and PM Shehbaz.

Former army chief retired General Abdul Waheed Kakar passed away in Rawalpindi on Monday, a statement by the military’s media affairs wing said.

Chief of Defence Forces and Chief of Army Staff Field Marshal Asim Munir and all ranks of the Pakistan Army “express deep sorrow” over his demise, the statement by the Inter-Services Public Relations added.

“The CDF and all ranks of the Pakistan Army pay tribute to the late general’s distinguished military career, leadership and invaluable services to the Pakistan Army.

“Pakistan Army shares the grief of the bereaved family and offers its heartfelt condolences. May Allah Almighty grant the departed soul highest place in jannah and give the family strength and patience,” the statement said.

The late general had served as Pakistan’s army chief from January 1993 to January 1996. He pressured then-president Ghulam Ishaq Khan and then-prime minister Nawaz Sharif to hand in their resignations, precipitating the 1993 elections in which Benazir Bhutto was elected as the prime minister.

He had retired at the end of his term.

President Asif Ali Zardari also expressed sorrow at the passing of the former army chief, conveying condolences to his family, according to a statement from his office.

“The president prays for the bereaved family to be granted the strength to bear this loss with patience,” the statement read.

Prime Minister Shehbaz Sharif, expressing condolences at the death of the former general, paid tribute to his “invaluable services” to the Pakistan Armed Forces, state broadcaster PTV reported.

Deputy Prime Minister and Foreign Minister Ishaq Dar, in a post on X, said he was “deeply saddened” by Kakar’s passing.

“His distinguished service to Pakistan and the Pakistan Army will be remembered with the highest regard,” Dar wrote, praying for the deceased’s family.

PTI Chairman Barrister Gohar Ali Khan, in a statement on X, lauded the late general’s services to the nation as well as his “professional dedication and the manner in which he fulfilled his national duties”.

Gohar added that Kakar will “always be remembered with honour and respect”.