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State Bank of Pakistan slashes interest rate by 2%

The State Bank of Pakistan (SBP) has slashed its key interest rate by two percent. The new rate has come down from 11 percent to 9 percent.

The State Bank’s Monetary Policy Committee on Thursday announced in a statement their decision to cut the policy rate by a further 200 basis points to 9 percent.

“The world economy is expected to enter the sharpest downturn since the Great Depression, contracting by as much as 3% in 2020, according to projections released this week by the IMF. This is a much deeper recession than the 0.07% contraction during the global financial crisis in 2009,” SBP said in a statement.

This reduces forward-looking real interest rates (defined as the policy rate less expected inflation) to around zero, which is about the middle of the range across most emerging markets.

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“Domestically, high-frequency indicators of activity―including retail sales, credit card spending, cement production, export orders, tax collections, and mobility data from Google’s recently introduced Community Mobility Reports―suggest a significant slowdown in most parts of the economy in recent weeks,” SPB further added.

The interest rate during the one month has declined by 4.25 percent.

Pakistan’s economy is expected to contract by 1.5% in the fiscal year ending June 30, 2020.

Saman Siddiqui

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