State bank cuts interest rate by 2%

The State Bank of Pakistan (SBP) cut its policy rate by a further 200 basis points taking it down to single-digit at 9 percent due to the prevailing situation of Coronavirus pandemic Crises.

SBP has issued a press release in which it stated “In light of this reduction in growth and inflation expectations, the MPC decided at its emergency meeting today, to cut the policy rate by a further 200 basis points to 9 percent.”

The press release further sid ‘This reduces forward looking realinterest rates (defined as the policy rate less expected inflation) to around zero, which is about the middle of the range across most emerging markets.”

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.

Inflation Would Decrease in Coming Days Due to Coronavirus Outbreak, SBP

It would also help ensure that economic activity is better placed to recover when the pandemic subsides.

The MPC highlighted that this rate cut would complement other measures recently taken by the SBP to
support the economy, including concessional financing to companies that do not lay off workers, 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.