State Bank of Pakistan slashes policy rate to 9 percent

KARACHI: Pakistan’s central bank slashed the key policy rate by 200 basis points to 9 percent in an unprecedented move on Thursday, taking the total rate cut in less than a month to 4.25 percent.
State Bank of Pakistan also reduced its economic growth projection for the current fiscal year from 3 percent to 1.5 percent, amid "exceptionally high uncertainty about the severity and duration of the coronavirus shock," it said in a statement on Thursday.
The prediction is in line with forecasts by the International Monetary Fund (IMF), which gave the same negative growth rate for Pakistan.
“In light of this reduction in growth and inflation expectations, the Monetary Policy Committee (MPC) decided at its emergency meeting today, to cut the policy rate by a further 200 basis points to 9 percent," the SBP statement read.
The SBP expects inflation to be in the 11-12 percent range this year.
The central bank noted that the global and domestic economic outlook has worsened since the MPC's last meeting on March 24. The world economy is expected to enter into the sharpest downturn since the Great Depression, contracting by as much as 3 percent in 2020, according to projections by the IMF.
"Pakistan’s economy is closely linked with global economy. Exports, imports, foreign direct investment, investment in treasury bill, remittances, foreign assistance, development partnership, provision of services etc are just some examples how we are linked with global economy and can’t remain insulated from global recession," Dr. Abdul Qayum Suleri, member of the government’s Economic Advisory Council EAC, told Arab News.
On Wednesday, G-20 countries decided to suspend principal repayments and interest payments for all the International Development Association (IDA) countries, including Pakistan, that are currently on debt service to IMF and World Bank, and all least developed countries as defined by the United Nations that are currently on any debt service to the IMF and the World Bank.
"G-20 debt rollover and IMF special loan helped Pakistan's central bank to further reduce interest rate to provide support to the economy that is likely to contract this year due to lockdown," said Muhammad Sohail, CEO of Topline Securities.
According to Pakistani industrialists, however, the rate is still very high and the cut was insufficient in the current circumstances when all business activity is on lockdown.
"I think in the prevailing situation the rate cut is not enough and the 9 percent interest rate is still very high that would be even higher when bank charges will be added to it," Mian Anjum Nisar, president of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) told Arab News, adding that the rate should be 5 percent, if not lower.