SBP cuts interest rate by 100bps to 7pc
Last updated on: 25 June,2020 07:57 pm
The MPC noted that the Covid-19 pandemic is spreading in many emerging markets, including Pakistan
KARACHI (Dunya News) – The State Bank of Pakistan (SBP) on Thursday slashed the benchmark interest rate by 100 basis points to 7 percent.
The Monetary Policy Committee (MPC) of the State Bank of Pakistan, in its meeting held on 25th June 2020 had decided to reduce the policy rate by 100 basis points to 7pc.
According to statment released by SBP, this decision reflects "the MPC’s view that the inflation outlook has improved further, while the domestic economic slowdown continues and downside risks to growth have increased. Against this backdrop of receding demand-side inflation risks, the priority of monetary policy has appropriately shifted toward supporting growth and employment during these challenging times."
The policy rate has continued to decline since COVID-19 first emerged in Pakistan and has fallen from 13.25pc in early March to 7pc now. This is the fifth cut since March and marks a decrease of 625 points in a short span of 3 months, the steepest decline it has ever seen. At 7pc, it is the lowest in the past 5 years.
The MPC noted that the Covid-19 pandemic is spreading in many emerging markets, including Pakistan, and there are fears of a second wave in several other countries. It observed that risks to the global outlook are heavily skewed to the downside and the path of recovery remains uncertain. The MPC also noted that in its update of the World Economic Outlook (WEO) released yesterday, the IMF downgraded its 2020 global growth forecast further to -4.9 percent, 1.9 percentage points lower than in April, and projected a more gradual recovery than previously anticipated.
The government is targeting average inflation to be 6.5% in the financial year 2020-21, which begins on July 1.
Against the backdrop of receding demand-side inflation risks, the priority has shifted toward supporting growth and employment during these challenging times, SBP said.
Pakistan s economy will contract 0.4% in the current year ending June 30, according to government estimates. It has targeted growth of 2.1% in the next financial year.
An IMF report released this week projected financial year 2020-21 s growth rate to be 1% while the World Bank s economic outlook put the figure at -0.2%.
The SBP s monetary policy committee noted that the path to recovery was uncertain, referring to the IMF slashing its global growth outlook to -4.9%, 1.9 percentage points lower than in April.
SBP said its move to slash the rate is based on the repricing of loans worth 3.3 trillion Pakistani rupees ($19.80 billion) being due in early July.
"In this way, the benefits of interest rate reductions would be passed on in a timely manner to households and businesses." ($1 = 166.7000 Pakistani rupees) (Reporting by Syed Raza Hasan; Writing by Gibran Peshimam; Editing by Toby Chopra and Alexandra Hudson)