The SBP has announced a monetary policy for the next two months in which interest rates have been maintained at 7% for the next two months.
According to a statement issued by the SBP, the Monetary Policy Committee has decided to maintain interest rates after conducting an economic review.
SBP Governor Raza Baqir has said that before the outbreak of Coronavirus, the interest rate was 13.25%. In two and a half months, interest rates were cut by 6.25%, resulting in a profit of Rs 470 billion.
Raza Baqir said that there are dangers of inflation, but it is possible to stay within the target. Inflation is expected to be 7-9% this fiscal year. The government also made important decisions to influence Corona’s economy. The economy has been improving since June’s monetary policy. Now the economic situation looks a bit better than before.
According to Express Tribune, the lockdown due to COVID-19 in the country and across the globe prompted the SBP to cut the policy rate by a significant 625 basis points in a period of four months from March to 7% in June 2020.
Against the backdrop of receding demand-side inflation risks, the priority of monetary policy has appropriately shifted toward supporting growth and employment during these difficult times.
However, the International Monetary Fund’s (IMF) current loan program has been put on hold ahead of the increase in electricity and gas prices. At the same time, the country’s foreign reserve is shrinking gradually while its expenditures are growing with Prime Minister Khan considering announcing a second relief package for households and businesses to help them cope with Coronavirus.
On the other hand, the average inflation reading shrank to 8.74% in the first two months of the current fiscal year, which was in line with the State bank’s projection of 7-9% inflation for 2021 financial year.