New monetary policy cuts interest rate by 1%, down to 19-month low

KARACHI (City News) – The Monetary Policy Committee (MPC) meeting on Friday decided to reduce the policy rate by 100 basis points to 8 percent. With this, the country’s interest rate has hit a 19-month low.

According to the details, the State Bank of Pakistan (SBP) has announced a new monetary policy and set the interest rate down at 8% in a bid to support business activities across the country. It is estiamted that inflation could fall closer to the lower end of the previously announced ranges of 11-12 percent this fiscal year and 7-9 percent next fiscal year.

The MPC noted three key developments since the last MPC meeting on 16th April, 2020. First, the government has significantly reduced petrol and diesel prices by 30-40 percent in response to the continued fall in global oil prices, which has improved the outlook for inflation.

Second, most countries, including Pakistan, have begun easing lockdowns, which should help provide support to economic activity. Nevertheless, as elsewhere, the situation remains highly uncertain. A possible rise in infections could prompt fresh lockdowns, and the recovery could prove more sluggish than is currently being anticipated.

Third, due to timely policy actions and international assistance, the initial volatility observed in domestic financial and foreign exchange markets has somewhat subsided in recent weeks, although global financial conditions remain considerably tighter than before the coronavirus outbreak.

Recent supportive developments have helped to restore the SBP’s foreign reserves position to close to pre-coronavirus levels of over US$ 12 billion

The interest rate has come down to a 19-month low after the SBP cut the base rate by one per cent and since March 2020, they have seen a total reduction of 5.25%.