MPC: SBP slashed the policy rate by 100 BPS to 7%

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The Monetary Policy Committee held a meeting on 25th June, 2020, in which the committee has decided to reduce the existing Policy rate by 100 basis points to 7%. The Monetary Policy Committee (MPC) in its last meeting held on May 15, 2020 has reduced the Policy Rate by 100 Basis Points to 8%.

This decision has been made in view of economic slowdown as the economy is moving towards a recession and the first priority of this policy would be to revive growth in the economy.

MPC felt that from a risk management perspective, a brief reaction to threats to development was called for given the improved inflation viewpoint. What’s more, the MPC noticed that with roughly Rs. 3.3 trillion worth of loans due to be repriced by early July 2020, this was a helpful moment to make a move from a fiscal  approach. Thus, the advantages of loan fee decreases would be given in a convenient way to households. The monetary policy committee also studied the impact of COVID-19 on the economy.

MPC observed that the SBP reserves declined to US$ 9.96 billion as of 19th June 2020 largely due to debt repayments. According to MPC average inflation could fall below the previously announced range of 7-9 percent for next fiscal year. With the current changes in policy rate, the MPC felt that real rates on a forward-looking basis (defined as the policy rate less expected inflation) would be kept close to zero, which is appropriate under the current circumstances. MPC noted that the depreciation in the rupee has been lower than many other markets, reflecting the increased reserve barriers accumulated over the last year.

The cumulative reduction in points of policy rate by MPC since March total 625 in view of  declining inflation rates during the observed period.