Pakistan slashes policy rate, cuts growth outlook

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State Bank of Pakistan.

Islamabad, (Asian independent) The State Bank of Pakistan (SBP) slashed the country’s policy rate for the third time in a month by 200 basis points to 9 per cent to counter the growing financial uncertainty and ease businesses amid the COVID-19 pandemic, said a statement.

According to the statement from the SBP issued on Thursday evening, the economy is expected to contract by 1.5 per cent in the ongoing financial year ending on June 30, 2020, before recovering to around 2 per cent growth in the fiscal year ranging from July 2020 to June 2021, reports Xinhua news agency.

The bank said the decision was taken after observing the reduction in growth and inflation expectations and to “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 central bank hoped that the cut would supplement other measures to support the economy, including concessional financing to companies that do not lay off workers, one-year extension in principal payments and doubling of the period for rescheduling of loans.

It said the reduction in the rate, which was 13.25 percent before March 17, would also help ensure that economic activity is better placed to recover when the pandemic subsides.

The statement referred to some domestic market research reports saying that high-frequency indicators of activity, including retail sales, credit card spending, cement production, export orders, tax collections and mobility data showed “a significant slowdown in most parts of the economy in recent weeks”.

The bank expected that the inflation would be close to the lower end of the previously announced 11-12 per cent range during this fiscal year, and to fall to 7-9 per cent range next fiscal year.
However, it feels that there are some upside risks to headline inflation in case of temporary supply disruptions or food price shocks.

The SBP added that it is working to take whatever further actions which become necessary in response to the evolving economic impact of the coronavirus amid a worsening outlook for global and domestic economic activity.

As on Friday morning, the country recorded a total of 7,010 confirmed COVID-19 cases, with 134 deaths.

The Pakistani government on Tuesday announced the extension of the countrywide lockdown till April 30 and allowed to open limited number of industries and businesses.