State Bank Indicates Further Policy Moves to Reduce Inflation

On Wednesday, the State Bank of Pakistan (SBP) suggested further steps to consolidate private sector finances amid the coronavirus crisis, keeping inflation under consideration. 

According to the SBP Governor Reza Baqir, the monetary policy committee had called emergency meetings in two months, thus lowering interest rates by more than 500 basis points – the largest drop in developing markets.

Dr. Raza Baqir said, “It was never in the history, we are considering the latest inflation numbers and would take action accordingly. We are also ready to call monetary policy committee meeting.”

He said that Interest rate is one measure, we are also willing to introduce new schemes or change existing schemes. Baqir said groups of businessmen demanded more flexibility in payroll financing schemes at several meetings with the central bank.

The governor said the SBP could review the facility for temporary economic refinancing and is open to something about it as interest rates have fallen since it was announced. Under the scheme for balancing, modernizing and replacing and expanding existing projects, the SBP refinances banks over 10 years for their ongoing funding extension at a maximum end-user rate of 7%.

“We have enough resources to support external account sector. Our exchange market is stable and if there are any day to day or week to week ups and downs, this is not unusual,” he added.

The governor said the SBP is working to include investment in treasury bills, savings scheme and stock markets within the scope of upcoming overseas Pakistanis digital accounts. He said that the financial inclusion is low but it’s getting better. Before Covid, the governor said economic conditions changed dramatically, both financially and in terms of real economy.

He said that total SBP liquidity injection amounted to Rs971 billion to mitigate the COVID-19 effect. Approximately Rs500 billion loans were postponed, and Rs71 billion restructured. Banks delayed loan payments worth Rs 494 billion for up to a year as of May 29, while the number of cases was 697,294, data from the central bank showed.

At least 828,700 borrowers applied to various banks for loan repayments to be deferred, restructured, and rescheduled.

Furthermore, banks also approved Rs4.8 billion loans until May 21 under a financing scheme for hospitals fighting coronavirus spread in the country. Twenty-four hospitals have so far benefited from this scheme.

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