KARACHI: The State Bank of Pakistan on Friday announced that it is slashing the policy rate by 100 basis points to 8%, the fourth cut by the bank within two months.
The SBP in a statement said that the Monetary Policy Committee (MPC) in its meeting on 15th May 2020 decided to reduce the policy rate by 100 basis points to 8%.
“This decision reflected the MPC’s view that the inflation outlook has improved further in light of the recent cut in domestic fuel prices. As a result, inflation could fall closer to the lower end of the previously announced ranges of 11-12% this fiscal year and 7-9% next fiscal year.”
The MPC, the central bank said, has highlighted that the coronavirus pandemic has created unique challenges for the monetary policy due to its non-economic origin and the temporary disruption of economic activity required to combat it.
“While easier monetary policy can neither affect the rate of infection transmission nor prevent the near-term fall in economic activity due to lockdowns, it can provide liquidity support to households and businesses to help them through the ensuing temporary phase of economic disruption.” The SBP said that the successive policy rate cuts and sizeable cheap loans have helped maintain credit flows, bolster the cash flow of borrowers, and support asset prices. “This has contained the tightening of financial conditions that would otherwise have amplified the initial necessary contraction in activity.”