The Monetary Policy Committee (MPC) of State Bank of Pakistan (SBP) has reduced the key policy rate by 200 basis points (bps) to 9 percent to minimize the Coronavirus shock on economic growth. The MPC had reduced the interest rate to 11 percent in its last meeting.
This decision was taken in an emergency meeting to minimize the effect of corona virus on economic growth.
The Committee noted that while there is exceptionally high uncertainty about the severity and duration of the Coronavirus shock, the developments imply further downward revision in the outlook for growth and inflation. The economy is expected to contract by -1.5 percent in FY20 before recovering to around 2percent growth in FY21.
This reduces forward looking real interest rates to around zero, which is about the middle of the range across most emerging markets.