SBP cuts its policy rate by 7.5bps to 12.5pc

The central bank has decided to cut the policy rate by 7.5 basis points to 12.5 per cent on Tuesday in the wake of Coronavirus market fallout. The Monetary Policy Committee of the State Bank of Pakistan has taken three majxor policy decisions during the meeting aiming to stay in line with the slowdown in global demand, volatility in financial markets, as well as steep fall in oil prices.

The outlook for Pakistan’s inflation has improved with the domestic deceleration in food prices and significant decline in consumer price expectations, encouraging a 7.5 bps rate cut from previous 13.25 per cent.

Accordicng to the central bank, the current market volatility in the country is triggered by external factors. Therefore, it is expected to subside with the global risk aversion. The central bank has said that it is willing to take all necessary measures to ensure price stability and support economic growth in current circumstances.

SBP has also announced a Temporary Economic Refinance Facility (TERF) along with its Shariah compliant instrument to stimulate investment into the manufacturing sector in its latest meeting. The facility is worth Rs100 billion. The scheme will facilitate banks with financing at a maximum end-user rate of 7 per cent for a period of ten years. The maximum loan size permitted is Rs5 billion which all manufacturing units can avail. The power sector has been exempted from this facility as SBP’s refinance facility for renewable energy projects already exists. For loans under this scheme, credit risk will be borne by banks and the same will determine which project to be financed. The scheme has been introduced in order to promote manufacturing in the country and counter any possible delays in initiation of new projects after the coronavirus fallout. The scheme will be around for one year and require a letter of credit to be opened by end of March.

The SBP has also announced a ‘Refinance Facility for Combating COBID-19’(RFCC) with its Shariah compliant version to support the health sector in combating the pandemic situation. The scheme will provide support to banks by SBP to provide financing at a maximum end-user rate of 3 per cent for 5 years to purchase equipment to detect, contain and treat COVID-19. The banks will be given this facility at a 0 percent rate.

All health facilities registered with federal or provincial health agencies and engaged in controlling and eradication of COVID-19 will be eligible for facility. The size of RFCC is Rs5 billion with a financing limit per health unit of Rs200 million. It will be opened in September.