The State Bank of Pakistan (SBP), in a meeting of its monetary policy committee (MPC) on Thursday, decided to slash the country's policy rate by 100 points to seven per cent, the fifth time the central bank has reduced the interest rate in the last 100 days.

The decision was taken in light of the improved inflation outlook, "while the domestic economic downslide continues and downside risks to growth have increased", said a statement released by the SBP.

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

The committee noted that risks to the global outlook are heavily skewed to the downside and the path of recovery remains uncertain. "The MPC also noted that in its update of the World Economic Outlook (WEO) released yesterday, the IMF downgraded its 2020 global growth forecast further to -4.9 per cent, 1.9 percentage points lower than in April, and projected a more gradual recovery than previously anticipated," the statement reads.

The MPC further observed that the the economy is expected to recover gradually in the next fiscal year as lockdowns ease. However, "the recovery will depend critically on the evolution of the pandemic both in Pakistan and abroad," the statement added.

The committee also noted that there had been an increasing take-up of SBP initiatives in recent weeks such as the concessional refinancing facilities to protect employment and support the health sector as well as regulatory measures to provide debt servicing relief.

"Together, this strong and data-driven monetary policy response should support growth and employment, while keeping inflation expectations anchored and maintaining financial stability," said the statement.