KARACHI: State Bank of Pakistan has reduced the interest rate by 150 basis points to eleven percent to offset the adverse economic impact of the novel coronavirus.
This is the second decline in policy rate within the month showing a collective decline of 225 basis points since mid-March. Earlier on March 17, the central bank announced the new monetary policy rate and cut its policy rate by 75 basis points to 12.50 percent as part of several measures to address the economic and health challenges posed by the spread of COVID-19.
The Monetary Policy Committee (MPC) of the central bank held an emergency meeting on Tuesday over the lastest development against the coronavirus where the decision was made. The committee was of the view that this cumulative easing would cushion the growth slowdown while protecting inflation expectations.
According to a statement by the central bank, the Monetary Policy Committee (MPC) noted considerable uncertainty about how the Coronavirus outbreak would impact the global economy and Pakistan during its last meeting March 17. It has noted that further actions would be taken when more information becomes available on the outlook for inflation and growth.
The central noted that substantial new information on global and domestic developments has become available since the last meeting and the coronavirus has severely increased globally. This has caused major disruptions to economic activity and the IMF has also significantly downgraded its global growth outlook for 2020 from 3.3 percent growth previously to below zero. These global developments have also led to a sharp fall in international trade.
On the domestic front, the number of COVID-19 cases has increased considerably, prompting social distancing and curtailment of activity. This is expected to lead to a noticeable slowdown in domestic demand. The developments discussed above imply that the outlook for growth and inflation in Pakistan is likely to be revised down further.
It also noted that the central bank was taking necessary regulatory measures in coordination with banks to address pressures on cash flows of borrowers affected by Coronavirus related disruptions through facilitating deferment and restructuring of their loans.
The announcement of these measures is expected soon and will complement the action being taken on interest rates. The central bank said it remains ready to take whatever further actions are necessary in response to the evolving economic impact of the coronavirus.
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