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For the 4th time in a row the State Bank of Pakistan (SBP) on Friday announced another cut of 100 basis points (bps) in the Policy Rate by fixing it at 8%, a press release said.
The SBP has reduced the policy rate by a cumulative 525 bps since 17 March 2020.
According to the central bank, the Monetary Policy Committee (MPC) at its meeting on 15th May 2020 made the latest adjustment in the Policy Rate. This decision reflected the MPC’s view that the inflation outlook has
improved further in light of the recent cut in domestic fuel prices.
As a result, inflation could fall closer to its lower end of the previously announced ranges of 11-12 per cent this fiscal year and 7-9 per cent next fiscal year, the press release added.
It was a long-standing demand of the traders to reduce the interest rate to facilitate their borrowings from banks. The traders have been demanding to reduce the Policy Rate to 2-3 per cent.
To facilitate the businessmen from the economic shocks of the Coronavirus (COVID-19) related lockdown in Pakistan the central bank has already announced a special scheme to provide soft loans to the private sector so that they can retain and pay salaries to their employees during the lockdown closure of the offices. On April 10, 2020, the SBP announced an incentive scheme entitled Refinance Scheme for Payment of Wages and Salaries to the Workers and Employees of Business Concerns.
The SBP enhanced its refinance limits to finance up to 100% of wages and salaries of businesses with an average 3- month wage bill of up to Rs 500 million. This can be used for the onward payment of wages and salaries in April, May and June 2020. Earlier, 100% financing was available up to a wage bill of Rs 200 million only. Similarly, for businesses with a 3-month wage bill exceeding Rs 500 million, State Bank will now finance of up to 75% with maximum financing of Rs 1 billion. Earlier, 75% financing was available up to a maximum of Rs 375 million and 50% up to a maximum of Rs 500 million.
The profits on bank deposits, term deposits and fixed deposit schemes would further be reduced as the commercial banks including National Saving Centre have already reduced their rates to a minimal level and pensioners and widows who have been investing in various schemes to earn regular income would receive less amount. Currently, term deposit profits range from 7 to 7.5 percent when the discount rate was 9 per cent. These banks will certainly reduce it further to bring to the level of 6 yo 6.5 percent.
