What the US Federal Reserve hiking interest rates could mean for Pakistan's economy

The US Federal Reserve has raised its benchmark interest rate by 25 basis points, its first hike in roughly three years, in an effort to rein in inflation that has been pushed higher by rising oil prices tied to the ongoing US-Israel conflict with Iran. Fed Chair Kevin Warsh, announcing the move, stressed that it was not driven by pressure from financial markets. The question now is whether, and how, this decision ripples into Pakistan's own economy.

The Immediate Global Market Reaction

The rate hike has already strengthened the US dollar, which touched a seven-week high in its aftermath, while putting downward pressure on other currencies worldwide. Moody's Analytics chief economist Mark Zandi noted that the move, along with signals of a further hike to come, was contributing to this dollar strength. Despite the tightening move, Asian markets, including Japan's Nikkei and the broader MSCI Asia-Pacific index, edged higher, and the Pakistan Stock Exchange also opened in positive territory, gaining close to one per cent by early afternoon trading.

Where Pakistani Analysts See the Real Risk: The Rupee and Policy Rate

Ammar H Khan of the Institute of Business Administration framed the domestic dilemma starkly: looking ahead, Pakistan may either need to raise its own interest rate by 50 to 100 basis points, or risk the rupee weakening against the dollar. JS Global's research head, Waqas Ghani Kukaswadia, offered a similar reading, suggesting the Fed's move could add pressure on the rupee, tighten global financial conditions generally, and make Pakistan's future external borrowing more expensive.

A Counterpoint: Near-Term Financing Looks Relatively Protected

Kukaswadia also pointed to a mitigating factor: Pakistan's near-term external financing needs are comparatively shielded for now, since the $3 billion Eurobond issued in September has already locked in its terms. In his assessment, the bigger and more immediate danger to Pakistan's external account comes not from the rate hike itself but from elevated global oil prices, given their direct effect on the country's import bill.

Dawn Columnist Khurram Husain: Limited Real Exposure

Business journalist and Dawn columnist Khurram Husain took a more measured view of the hike's domestic significance, describing it as large enough to irritate US President Donald Trump but too modest to meaningfully lower long-term US treasury yields. On Pakistan specifically, he argued there was nothing substantial to worry about, since the country's exposure to the move is not especially large. He estimated the practical effect would be limited to a modest rise in the cost of servicing external debt, roughly proportional to the 0.25 percentage point increase, and little beyond that.

A More Cautious Voice: Capital Flight and Deepening Inflation

Financial analyst Jibran Sarfraz struck a notably more concerned tone, warning that the 25-basis-point increase could weigh heavily on the fiscal position of emerging markets such as Pakistan. He raised the possibility of capital flight, as investors move funds into higher-yielding US treasuries, which could in turn reduce the dollar supply available to Pakistan and put downward pressure on the rupee. Sarfraz also flagged Pakistan's substantial dollar-denominated external debt as a channel through which servicing costs could rise, and warned that the resulting increase in import costs, particularly for food, could add further strain to inflation that is already running in double digits.

The Bigger Picture

Taken together, the range of analyst views suggests no consensus yet on how sharply Pakistan will feel this particular hike; estimates run from a limited, largely mechanical uptick in debt-servicing costs to warnings of currency pressure, capital outflows and worsening inflation. What most analysts do agree on, however, is that the channel to watch most closely is not the interest-rate move in isolation but its interaction with already-elevated global oil prices, which several noted pose a more direct and immediate threat to Pakistan's import bill and external account than the rate decision itself.

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Source

• What the US Federal Reserve hiking interest rates could mean for Pakistan's economy — Dawn, September 17, 2026