Pakistan Assures IMF It’s Ready to Raise Interest Rates If Needed

Pakistan has assured the International Monetary Fund that it stands ready to tighten monetary policy, including raising interest rates and maintaining exchange-rate flexibility, if inflationary pressures intensify amid fallout from the Gulf conflict.

Islamabad told the Washington-based lender it would keep a tight monetary stance in the coming months and could increase borrowing costs if needed, while continuing to monitor volatility in global food and fuel prices and their pass-through to domestic inflation.

The commitment follows the State Bank of Pakistan’s decision earlier this month to hold the benchmark policy rate steady after regional tensions escalated, despite having lowered rates by 50 basis points in December 2025 when flood-related risks had eased.

Pakistan also reiterated that exchange-rate flexibility would remain a key shock absorber against external pressures, including spillovers from Middle East tensions. Authorities pledged to ensure that balance-of-payments constraints do not disrupt import financing and other external payments.

The government and the central bank committed to improving monetary policy communication by providing clearer guidance on the policy stance and risk assessments in Monetary Policy Committee statements and minutes by June 2026.

Separately, Islamabad told the IMF it would publish semi-annual foreign-exchange reserve targets and gradually ease foreign-exchange restrictions under a roadmap extending through March 2027. The plan includes shifting from pre-transaction verification toward risk-based post-transaction supervision to support a more efficient interbank currency market.

Pakistan also assured the lender it would prepare an action plan by May 2026 to address rising costs associated with channeling workers’ remittances through banks and exchange companies. Authorities said a mechanism would be introduced to ensure subsidy claims linked to remittance incentive schemes remain within annual budget allocations, after overruns in recent years.