SBP acts swiftly for a change.

Byline: Mohiuddin Aazim

WHILE reaffirming the International Monetary Fund's (IMF) warning that the economy may contract 1.5 per cent during this fiscal year, the State Bank of Pakistan (SBP) slashed its policy rate from 11pc to 9pc on April 16.

This was the third rate cut in a month. Earlier, on March 17 and March 24, the SBP had reduced the rate from 13.25pc to 12pc and then to 11pc. 'The economy is expected to contract by -1.5pc in 2019-20 before recovering to 2pc growth in 2020-21,' warned the central bank's statement issued after an emergency meeting of its monetary policy committee. The committee was of the view that 'this action would cushion the impact of the coronavirus shock on growth and employment,' it read.

The economy is in deep trouble. Covid-19, caused by a novel coronavirus that first attacked China in January, is the culprit. It has brought economic activity to a near-standstill.

Governments around the world have come up with economic stimulus packages and central banks have slashed interest rates to prop up demand. The Pakistan government, too, has rolled out a Rs1.2 trillion stimulus package and the SBP has slashed the interest rate by 425 basis points - from 13.25pc to 9pc - in three instalments in 30 days. Both fiscal and monetary authorities want to contain the current economic downturn and set the stage for recovery in the next fiscal year.

All that matters now for the government is how to increase demand in the economy

In addition to swift monetary easing, the SBP has already taken several other measures to support the economy and combat growing joblessness.

These include 'concessional financing to companies that do not lay off workers, one-year extension in principal payments, doubling of the period for the rescheduling of loans from 90 to 180 days and concessional financing for hospitals and medical centres to combat the coronavirus pandemic'.

The SBP's recent interest-rate slashing coincided with the IMF pledging $1.4 billion for Pakistan to help it meet urgent balance-of-payments requirements. The twin moves were well received by foreign exchange and stock markets. The rupee gained some strength and the stock market witnessed a bullish run.

But the spread of Covid-19 continues. The nation does not know if it has hit the peak or the worst is yet to come. There is no official prediction about when its growth curve would flatten. Uncertainty is in the air.

Amidst this environment of fear and uncertainty, the federal...