SBP cuts policy rate by 50 basis points

Reducing inflation and increasing liquidity cited as the reason for the move.

Web Desk June 21, 2013
The decision comes in the face of increasing pressure caused by borrowings. PHOTO: FILE

The Central Board of Directors of State Bank of Pakistan on Friday decided that the policy rate will be reduced by 50 basis point to 9 per cent with effect from June24.

In a statement about its monetary policy decision, SBP cited reducing inflation and provision of low private sector credit as the reason for this move.

"Due to almost zero net external financing in FY13, the burden of financing the sizeable deficit of 8.8 percent has fallen disproportionately on domestic sources, in particular the banking system," SBP said in its statement.

The statement said that it is the financing pressure of the fiscal position that is source of the stress, from the monetary policy perspective.

"During 1st July to 7th June, financial year 2013, fiscal borrowings from the banking system for budgetary support were Rs1230 billion, including Rs413 billion from the SBP," said SBP.

The high level of these borrowings has put a strain on the system's liquidity and has proved to be a hindrance to the growth of private sector credit which the SBP aims to counter by reducing its policy rate by 50 basis points.

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COMMENTS (6)

Noway | 7 years ago | Reply | Recommend

What drama for nothing. Private sector credit will not increase substantially. Someone has to want credit to invest and run a business and earn. They will not do any of this until the govt provides energy and security. Yeah, they might take the money and invest in Bangladeshi factories, but how does that feed back into our economy. All they have done is reduce time deposit yields for public and this will divert some speculationary money into stocks and property.

choptocut | 7 years ago | Reply | Recommend

All the commerical banks (or some specific) who have billions of rupees of bonds will be benefited enormously by this decision of our "Independent" Central bank. (Because decrease in the rate of interest increase bond prices). Unsurprisingly, in the coming months we will be watching higher property prices and higher stock exchange index. But no generation of real employment opportunities. This is casino capitalism. Our financial experts are sucking the bloosd of ignorant poor people. There is no accountability, neither transparency about what they are doing, how much they are earning and from whom.

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