KARACHI: The State Bank of Pakistan’s move to increase the policy rate to absorb the inflationary pressure in July 2019 resulted in lower credit demand from the private sector, which slowed down business activitiy, said the Economic Survey 2019-20 on Thursday.

“While domestic production and retail trade were adversely affected by the stabilisation efforts, they received a major blow when the businesses were shut amid lockdown to control the Covid-19,” said the SBP.

The pandemic caused slowdown in economic activity and increased uncertainty about the future, said the survey adding that the policy interest rate is now near zero in many advanced countries.

However, as the inflationary pressure eased because of the declining oil prices, and falling demand due to the pandemic, the SBP cut the policy rate by cumulative 525 basis points to eight per cent in two months, it added.

The survey reported that despite the challenges, the banking sector performed reasonably well during CY19. Its witnessed a year-on-year growth of 11.7pc, compared to 7.3pc the year before.

With 13pc growth, investments contributed more than 40pc in asset expansion during CY19, added the survey.

On the other hand, advances (net) exhibited a modest increase of 3.7pc as against 22.2pc in CY18.

“The moderation in advances was due to the sluggish economic activity resulting from the stabilisation measures adopted to contain macroeconomic vulnerabilities,“ stated the document.

The deceleration in advances was broad-based and a visible lower financing demand was observed in textiles, chemicals, and pharmaceuticals and cement sectors, it added.

According to the survey, the profitability of the banking sector rebounded as after-tax profit surged by 14.8pc in 2019, versus against a decline of 5.6pc in CY18.

Similarly, bank deposits surged by Rs499.6 billion (higher by 3.9pc) between July 1 and April 24, as compared to Rs144bn last year, said the government report.

Market offered the total amount of Rs26.7 trillion for treasury bills during July-March FY20, as against Rs15tr in the same period of last fiscal year while the government raised Rs13.2tr, versus Rs13.8tr, it added.

Another Rs5.7tr during July-March FY20 through the Pakistan Investment Bond auctions compared to Rs1.6tr in the same period of last year with the government raising Rs1.67tr.

On the other hand, consumer financing drastically fell to just Rs15.5bn in the first nine months of FY20, compared to Rs43bn in the same period of last fiscal year, while lending for house building and other areas contracted by 6.1pc and 19.8pc, respectively.

Published in Dawn, June 12th, 2020

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