The State Bank of Pakistan on Friday announced that it is slashing the policy rate by 100 basis points to 8 per cent, the fourth cut by the bank within two months.
According to the official statement, the Monetary Policy Committee (MPC) in its meeting on 15th May 2020 decided to reduce the policy rate by 100 basis points to 8 per cent.
“This decision reflected the MPC’s view that the inflation outlook has improved further in light of the recent cut in domestic fuel prices. As a result, inflation could fall closer to the lower end of the previously announced ranges of 11-12 per cent this fiscal year and 7-9 per cent next fiscal year.”
The MPC, the central bank said, has highlighted that the coronavirus pandemic has created unique challenges for the monetary policy due to its non-economic origin and the temporary disruption of economic activity required to combat it.
“While easier monetary policy can neither affect the rate of infection transmission nor prevent the near-term fall in economic activity due to lockdowns, it can provide liquidity support to households and businesses to help them through the ensuing temporary phase of economic disruption.”
The SBP said that the successive policy rate cuts and sizeable cheap loans have helped maintain credit flows, bolster the cash flow of borrowers, and support asset prices. “This has contained the tightening of financial conditions that would otherwise have amplified the initial necessary contraction in activity.”
The statement further said that the “coordinated and broad-based policy response” by the government and aided by the international community has “provided relief and stability and should provide support for recovery as the pandemic subsides”.
“In reaching its decision, the MPC considered key trends and prospects in the real, external and fiscal sectors, and the resulting outlook for monetary conditions and inflation.”
