SBP cuts interest rates to 8pc as coronavirus fallout hits economy

Published
20
This is the fourth time the State Bank has cut rates since the coronavirus pandemic hit two months ago. — APP/File
This is the fourth time the State Bank has cut rates since the coronavirus pandemic hit two months ago. — APP/File

The State Bank of Pakistan (SBP) cut its benchmark interest rate on Friday by 100 basis points to eight per cent, the fourth time it has cut rates since the coronavirus pandemic hit two months ago.

“Easier monetary policy ... can provide liquidity support to households and businesses to help them through the ensuing temporary phase of economic disruption,” the SBP said, adding the likelihood of surging inflation expected earlier in the year had also reduced.

The bank has cut rates by a total of 525 basis points since the beginning of the health crisis two months ago and has announced a package of measures to support poorer workers hit by the pandemic as well as offering risk sharing with private banks on concessional lending to boost liquidity.

Before the crisis hit, the bank had held rates at an elevated level of 13.25pc for months as it sought to rein in inflation which rose to more than 14pc in January. Falling oil prices now make inflation less of a concern.

Friday's rate cut “reflected the [monetary policy committee's] view that the inflation outlook has improved further in light of the recent cut in domestic fuel prices”, the bank said.

“As a result, inflation could fall closer to the lower end of the previously announced ranges of 11-12pc this fiscal year and 7-9pc next fiscal year.”

The decision comes around a fortnight before the government announces the 2020-21 budget, aimed at finding ways to generate revenue and cut expenditures.

Due to a shortfall in revenue, re-prioritising of expenditure and increase in public spending, the post-pandemic fiscal deficit could reach as high as 9.4pc, against an earlier projection of 7.4pc, according to finance ministry documents seen by Reuters.

The government began a phased lifting of the countrywide lockdown last week despite a rising rate of cases — a move pushed primarily by fears of an economic meltdown. The country has so far registered more than 38,000 Covid-19 cases and 821 deaths.

“Easing lockdowns ... should help provide support to economic activity. Nevertheless, as elsewhere, the situation remains highly uncertain,” the SBP said.

“A possible rise in infections could prompt fresh lockdowns, and the recovery could prove more sluggish than is currently being anticipated.”

Follow Dawn Business on X, LinkedIn, Instagram and Facebook for insights on business, finance and tech from Pakistan and across the world.

Opinion

Editorial

Kashmir unresolved
Updated 30 Sep, 2026

Kashmir unresolved

The just solution lies in India addressing the issue through a trilateral dialogue involving the legitimate representatives of the Kashmiri people and Pakistan.
Water shortage
30 Sep, 2026

Water shortage

THAT the country is entering the Rabi season with an anticipated water shortage of nearly 25pc, the lowest carryover...
Young hearts
30 Sep, 2026

Young hearts

THE observance may have passed, but the message of World Heart Day should not fade with it. The occasion is a useful...
Terror and politics
Updated 29 Sep, 2026

Terror and politics

There is an urgent need to tone down the rhetoric and tackle terrorism as a collective challenge for both the affected provinces and the federation.
Watching the glaciers
29 Sep, 2026

Watching the glaciers

THE latest signs from Pakistan’s mountains are worrying. Suparco says the number of unfrozen glacial lakes it...
Dangerous agenda
29 Sep, 2026

Dangerous agenda

AS the world remains fixated on the US-Iran conflict, elsewhere in the Middle East, Israel is consolidating its grip...