The State Bank of Pakistan (SBP) announced that it is further reducing the policy rate of the country by 1%, bringing it to 7%.
According to a press release issued by the central bank, SBP’s Monetary Policy Committee (MPC) met today and agreed to reduce the policy rate by 100 basis points to 7%.
State Bank said, “This decision reflected the MPC’s view that the inflation outlook has improved further, while the domestic economic slowdown continues and downside risks to growth have increased,”
The committee recorded that it was an “opportune moment” to take action from a monetary policy transmission perspective as “approximately Rs3.3 trillion worth of loans are due to be repriced by early July 2020”.
“In this way, the benefits of interest rate reductions would be passed on promptly to households and businesses,” said the statement.
The MPC also noted that IMF in its latest report has downgraded its 2020 global growth forecast further to -4.9%.
The MPC also noted that domestically headline inflation declined further to 8.2% in May on the back of the recent cut in diesel and petrol prices. It also stated that month-on-month inflation rates also continue to be low.
The committee shared that the upcoming budget for the fiscal year 2020-21 is also expected to be “neutral for inflation” due to the freeze on government salaries, absence of new taxes, and lower production cost from reduced import duties which it said should offset the decline in subsidies in some sectors.