Policy rate to remain unchanged at 7pc: SBP

Web Desk – September 21, 2020

The State Bank of Pakistan (SBP) has decided to maintain its policy rate at seven per cent in its new monetary policy announced on Monday.

Following a meeting of the Monetary Policy Committee (MPC), the SBP, in a statement, said: “In reaching its decision, the MPC considered key trends and prospects in the real, external and fiscal sectors, and the resulting outlook for monetary conditions and inflation.”

The statement by the central bank also noted that “business confidence and the outlook for growth have improved” in the country since the last meeting of the MPC that was held in June.

The statement said that the improvement reflected the decrease in coronavirus cases, ease in lockdowns as well as the “timely stimulus provided by the government and SBP”. However, due to “supply side shocks” to food prices, the inflation forecast has risen slightly and the rate will now remain within the range of 7-9pc in financial year 2021, the statement added.

It further said that the “targetted measures” taken by the central bank and the federal government have injected Rs1.58 trillion, or about 3.8pc of GDP, in the cashflow of both households and businesses.

The MPC noted that the country’s manufacturing sector had expanded by 5pc after the slump in March and April due to lockdowns imposed to curb the pandemic.

Not all the industries witnessed a similar growth, however, and economic activity “generally still remains below pre-corona levels”, the statement said. According to MPC’s projection, economic recovery would be slightly above 2pc in FY21 after it fell to -0.4pc in the last fiscal year. Risk factors remain, however, including a second wave of Covid-19, an increase in cases in Europe and US — which are Pakistan’s major export markets — and the threats posed by possible locust attacks to crops.

“Taking into account the changes in the outlook for inflation and growth since the last MPC and the impact of the stimulus measures undertaken by the government and SBP, the MPC was of the view that the stance of monetary policy remained appropriate to provide needed support to the emerging recovery, while keeping inflation expectations well-anchored and maintaining financial stability,” the statement read.

“Overall, the MPC was of the view that the current monetary policy stance is appropriate to support the emerging recovery while safeguarding inflation expectations and financial stability,” it concluded.

On June 25, the SBP had decided to slash the country’s policy rate by 100 points to 7pc, the fifth time since the coronavirus pandemic hit the global economy, with the total reduction being 625 basis points.

At the time, the SBP had said that the decision was taken in light of the improved inflation outlook, “while the domestic economic downslide continues and downside risks to growth have increased”.

It was the fifth rate cut since the coronavirus pandemic hit the global economy, with the total reduction being 625 basis points.

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