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Friday, March 29, 2024

SBP cuts interest rate by 2 percent because of COVID-19

The State Bank of Pakistan (SBP) on Thursday cut its key interest rate by two percent. The new rate has come down from 11 percent to 9 percent.

The State Bank’s Monetary Policy Committee announced in a statement their decision to to cut the policy rate by a further 200 basis points to 9 percent. This reduces forward looking real interest rates (defined as the policy rate less expected inflation) to around zero, which is about the middle of the range across most emerging markets.

The interest rate has been reduced keeping in view the coronavirus situation in the country. The interest rate declined by 4.25 percent during one month.

Earlier, the SBP announced that it will provide loans to health facilities on 3% markup to counter coronavirus outbreak. The SBP declared that inflation rate will come down in the coming months while the prices of petroleum products will also decrease.

Local businesses and exporters have lately been protesting at high borrowing costs, which they said was harming investment.

In January, the SBP left the interest rate unchanged at 13.25 percent. The SBP announces a target rate every two months, which serves as the benchmark interest rate for overnight funds in the interbank market. It is one of the tools the central bank uses to ensure price stability in the economy.

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