State Bank of Pakistan cuts main policy rate by 100 bps to 7%

The State Bank of Pakistan (SBP) on Thursday has announced a further reduction in the policy rate of the country by 1%, bringing it to 7%. The decision was made by the Monetary Policy Committee (MPC).

The policy rate has continued to decline since COVID-19 first emerged in Pakistan and has fallen from 13.25% in early March to 7% now.

This is the fifth cut since March and marks a decrease of 625 points in a short span of 3 months.

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According to the statement 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.”

“Consistent with its mandate, the MPC re-asserted its commitment to supporting households and businesses through the Covid-19 crisis and minimizing damage to the economy. In this context, the MPC felt that from a risk management point of view, prompt response to downside risks to growth was called for given the improved inflation outlook”, says the statement.

“In addition, the MPC noted that with approximately Rs. 3.3 trillion worth of loans due to be repriced by early July 2020, this was an opportune moment to take action from a monetary policy transmission perspective. In this way, the benefits of interest rate reductions would be passed on in a timely manner to households and businesses,” the statement further added.