SBP slashes interest rate by 100 basis points to 8pc

ISLAMABAD: The State Bank of Pakistan (SBP) on Friday reduced the policy rate by 100 basis points to eight per cent, the fourth cut by the central bank since COVID-19 outbreak emerged in the country two months ago, ARY News reported.

In a statement, SBP said that the Monetary Policy Committee (MPC), in its meeting today, decided to reduce the policy rate by 100 basis points to eight 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 percent this fiscal year and 7-9 percent next fiscal year, read the statement.

Monetary Policy Committee decides to reduce the policy rate by 100 bps to 8 percent. For complete statement: https://t.co/cwsJD8L4dv pic.twitter.com/WNSnuceCrm

— SBP (@StateBank_Pak) May 15, 2020

The MPC highlighted that the coronavirus pandemic has created unique challenges for 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.

SBP said that the successive policy rate cuts and sizeable cheap loans provided through the bank’s enhanced refinancing facilities 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, it added.

The MPC also noted the swift and forceful monetary easing of 525 basis points in the two months since the beginning of the crisis and SBP’s measures to extend principal repayments provide payroll financing, and other measures to support liquidity.