A Quick Note on SBP Announcement (COVID-19)

State Bank of Pakistan (SBP) announced three measures in its monetary policy statements to address the economic and recent health challenges in the backdrop of spread of COVID-19. First, it cut its policy rate by 75 basis points. Second, it announced a “Temporary Economic Refinance Facility (TERF)” to encourage new investment in manufacturing. Third, it announced a “Refinance Facility for Combating COVID–19 (RFCC)” to support hospitals and medical centers in combating the spread of COVID–19. The cut in policy rate was expected due to four important domestic and international reasons. First, the arrival of domestic supplies of food commodities led to recent deceleration in their domestic prices. Second, a significant decline in consumer price expectations based of expectation surveys of SBP. Third, a sharp fall in global oil prices. Fourth, last but not the least, is the slowdown in external and domestic demand due to the COVID-19 pandemic. Lowering of the policy rate was inevitable, but the size of cut needs further discussion.