The State Bank of Pakistan (SBP) has issued a monetary policy under which it has decided to reduce interest rates by another one per cent.
After a 1% cut, the interest rate has come down to 8%. Interest rates have been cut by 5.25% in the last two months. According to the SBP, the inflation rate is likely to be 11 to 12 per cent this year and 7 to 9 per cent in the next fiscal year.
According to SBP, a reduction in interest rates will not end the economic slowdown but will solve the problem of shortage of funds.
A statement issued by the SBP said that tax revenue fell sharply by 15 per cent in March and April. The deficit is expected to widen in the fourth quarter of the current financial year. Despite the challenges, the current account deficit is likely to remain under control.
According to the SBP, the overall consumption and services sectors will remain under pressure for the time to come.
With today’s policy rate cut of 100 bps, Pakistan has given the largest monetary policy stimulus to the economy in response to Covid-19. pic.twitter.com/0HGig4z7WL
— SBP (@StateBank_Pak) May 15, 2020
According to the SBP, food prices are likely to rise due to poor agricultural conditions. If the economy remains sluggish in the next financial year, inflation could fall further.
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