Zubair Yaqoob
Karachi
The Monetary Policy Committee of State Bank of Pakistan (SBP) decides to cut the interest rate by 75 basis points to 12.5% for the next two months.
The announcement was largely in line with market expectations as th rate cut was expected due to low inflation outlook in the domestic economy and to tackle the potential impact of the coronavirus pandemic on the country.
However, the central bank revised down its projection for GDP growth to 3% for FY20. Earlier, the central bank projected it at 3.5%.
“SBP stands ready to take more measures to support the real economy amid spread of coronavirus pandemic,” it said. “SBP will provide loans for all new business projects at 7% for a 10-year period.
This scheme is only for one year.”
Initially, Rs100 billion has been allocated under the scheme.
Commercial banks would provide loans to registered hospitals and other medical facilities at 3% interest rate.
In this regard, the SBP has allocated Rs5 billion.
A massive over 30% drop in international crude oil prices primarily due to the virus concerns created a big room for the policy rate reduction.
Pakistan’s economy heavily relies on imported energy resources.
The share of energy in the total import bill stood at one-fourth in first seven months of FY20. The drop in global oil prices is estimated to help Pakistan save around $5 billion in the annual import bill.
Over the past few weeks, a large number of world economies have cut interest rates to allay investor concerns as global markets remain in free fall.
The SBP announces a target rate every two months, which serves as the benchmark interest rate for overnight funds in the inter-bank market. It is one of the tools the central bank uses to ensure price stability in the economy.
Earlier, Prime Minister Imran Khan had also expressed hope that the central bank would cut the benchmark interest rate, which is needed to step up economic activities.
