By Ali Imran
ISLAMABAD: The State Bank of Pakistan (SBP) on Thursday announced that it had slashed the interest rate by 200 basis points, bringing it down to 9 percent from 11 percent.
The decision was announced in a Monetary Policy Statement issued by the central bank in which it stated that the decision had been taken as the “global and domestic outlook has further deteriorated” due to the coronavirus pandemic.”
The MPC was of the view that this action would cushion the impact of the Coronavirus shock on growth and employment, including by easing borrowing costs and the debt service burden of households and firms, while also maintaining financial stability.
It would also help ensure that economic activity is better placed to recover when the pandemic subsides,” read the statement from the SBP.The SBP noted that its measures would help provide support to the economy similar to the recent steps taken by the central bank, which included an employment scheme.
According to the scheme, companies that do not lay off their workers will be able to avail loans at cheap interest rates.
The SBP’s measures to regulate economic activity include the provision of facilities of a one-year extension in principal payments, doubling of the period for rescheduling of loans from 90 to 180 days, and concessional financing for hospitals and medical centers incurring expenses to combat the coronavirus pandemic.
This is the second time that the interest rate has been reduced by the SBP in one month. The central bank has cut the interest rate by 4.25% in one month to cope with the coronavirus which has adversely impacted businesses globally and in Pakistan.
The State Bank of Pakistan in an emergency meeting of the monetary policy committee (MPC) on Thursday slashed the country’s policy rate by 200 points to nine per cent, the third time the central bank has reduced the interest rate in less than a month. The decision was taken “in light of the reduction in growth and inflation” projections released by the International Monetary Fund (IMF) earlier this week, said a statement released by the SBP. “Given the unfolding situation, the MPC noted that it ‘remains ready to take whatever further actions become necessary in response to the evolving economic impact of the Coronavirus’.”
The committee noted the impact of the coronavirus pandemic on the global economy, which it said “is expected to enter into the sharpest downturn since the Great Depression”. “The MPC was of the view that this action would cushion the impact of the Coronavirus shock on growth and employment, including by easing borrowing costs and the debt service burden of households and firms, while also maintaining financial stability,” the press statement read. “It would also help ensure that economic activity is better placed to recover when the pandemic subsides.”
Earlier this week, the IMF in its annual World Economic Outlook, had projected Pakistan’s economy to shrink by 1.5pc during this fiscal year, compared to 3.3pc growth in 2018-19. The IMF had also forecast Pakistan’s consumer price index rising by 11.1pc this year before easing to 8pc next year. It also estimated the current account deficit at 1.7pc of GDP in 2019-20 which will increase to 2.4pc next fiscal year.
Moreover, the country’s unemployment rate is projected at 4.5pc in FY20 and 5.1pc the next fiscal year. The SBP had reduced the policy rate on March 17, when it cut rates by 75 bps to 12.50pc citing a declining inflationary pressure. It was the first such reduction in four years and was one of the initial measures the bank took to sustain the economy that was hit by the coronavirus crisis. The central bank had noted that the Covid-19 pandemic precipitated a slowdown in global demand and volatility in world financial markets, as well as a steep fall in oil prices.
