State Bank of Pakistan (SBP) has cut the main interest rate by 100 basis points to 7%, marking a fifth cut since the pandemic begans looming in the country in the month of March. The outbreak and its contain measurements pulled the country's economy to a grinding halt, forcing the central bank slashing a total of 625 basis points in five phases from a rate of 13.25%.
Statement from SBP said that the decision reflected the Monetary Policy Committee’s view that the inflation outlook has improved further, while the domestic economic slowdown continues and downside risks to growth have increased.
On a brighter side, Pakistan's inflation has come down considerably from a high of 14.56% year-on-year in January, to a 8.22% in May. The government targets average inflation for next fiscal year of 2020-2021 to be 6.5%.
Pakistan’s government estimates the economy will contract 0.4% in the current financial year ending June 30, and target growth of 2.1% in the next year.
An IMF report projected Pakistan next financial year growth rate to be 1% while the World Bank’s economic outlook put the figure at -0.2%. But SBP monetary policy committee opined that the recovery outlook was uncertain since IMF revising their global growth outlook at a lower 1.9% from April to -4.9%
The SBP’s monetary policy committee noted that the path to recovery was uncertain, referring to the IMF slashing its global growth outlook to -4.9%, 1.9 percentage points lower than in April. The move to slash the interest rate is based on the repricing of 3.3 trillion Pakistani rupees ($19.80 billion) of loans due in early July.
