SBP once again slashes policy rate by 100 basis points to 7%.

KARACHI: The State Bank of Pakistan (SBP) on Thursday cut the policy rate by another 100 basis points to bring it to 7%, it announced following a meeting of the Monetary Policy Committee which met under Governor Dr Reza Baqir.

"This decision reflects the MPC's view that the inflation outlook has improved further, while the domestic economic slowdown continues and downside risks to growth have increased," the central bank said on Twitter, announcing the fifth rate cut in three months since the coronavirus pandemic hit Pakistan. "Against this backdrop of receding demand-side inflation risks, the priority of monetary policy has appropriately shifted toward supporting growth and employment during these challenging times," it added, noting that the MPC felt a 'prompt response to downside risks to growth' in context of a risk management viewpoint, given the improved inflation outlook.

"The MPC noted that with approximately Rs 3.3 trillion worth of loans due to be repriced by early July 2020, this was an opportune moment to take action from a monetary policy transmission perspective," it said, and observed a fear of a second wave of coronavirus pandemic hitting the country. "The risks to the global outlook are heavily skewed to the downside and [that] the path of recovery remains uncertain," it added.

"The MPC noted that in its update of the World Economic Outlook (WEO), the IMF downgraded its 2020 global growth forecast further to -4.9%, 1.9 percentage points lower than in April, and projected a more gradual recovery than previously anticipated," the SBP stated. "Domestically, the moderation of underlying inflation has continued. Notwithstanding a seasonal uptick in food prices associated with the Eid holiday, headline inflation declined further to 8.2 percent in May on the back of the recent cut in diesel and petrol prices," it further stated. "The FY2020/21 budget is also expected to be neutral for inflation as the freeze on government salaries, absence of new taxes, and lower...