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February 21, 2020

SBP’s Baqir signals possible rate cut this year if inflation falls

Business

February 21, 2020

KARACHI: The central bank could lower interest rates later this year as consumer inflation, the cornerstone of its policy framework, is expected to ease in coming months, bank’s governor said on Thursday.

“Drop in inflation would have a trickle-down impact as food inflation is currently on the higher side. Reduction in inflation would help in reducing interest rate,” Reza Baqir, governor State Bank of Pakistan (SBP) said.

In January, consumer inflation stands at 14.6 percent and interest rate at a decade-high of 13.25 percent. Baqir, however, clarified that monetary policy committee decides policy without any interference from the government.

“Committee does not have any member from the government,” Baqir told participations of CEO Summit Asia. “After analysis the inflation rate, policy rate has been decided.” Governor Baqir said the economy is coming back to growth trajectory from stability mode with fundamental economic indicators, like current and fiscal account positions depicting signs of improvement.

“Now things have been better and one could analyse the difference… “Currently we are moving from stability to growth. Things will take time to further improve.”

SBP governor said exchange rate is stable and foreign exchange reserves are at the comfortable level. Currently, foreign exchange reserves stand at the level of $12 to 13 billion.

Baqir said though exports contribute less than 10 percent to GDP, they grew 4.5 percent in the first half of the current financial year, showing steady growth of the economy. Pakistan increased its exports compared to falling exports in several regional economies, which were considered as export powerhouses, he added.

SBP governor said the preliminary signs of economic turnaround started to appear. Sales of cement, imports of machinery, and large scale manufacturing monthly growth proved the notion that the national economy steers towards growth. “We can say with confidence that we have put the worst behind us,” he said.

Baqir said public sector has to do a lot to bring reforms in its working to support the growth of the private sector. “We have to do much more for growth of the economy and exports.” SBP governor further said only 15 percent of the adult female population of the country have active bank accounts.

“This a major challenge before the State Bank as this national rate is even lower than the South Asian average of 65 percent,” he added. “The big question whose answer had to be ascertained was that why there was so phenomenal difference between percentage of Pakistani adult female population having active bank accounts and the South Asian average.”

SBP said one of the strategies being used by the State Bank to address this issue is promotion of entrepreneurship among female population of the country. Another area being focused by the State Bank is introduction of electronic and digital means for financial transactions. Micro payment gateway would soon be launched to digitise the transactions. “This new platform would put Pakistan prominently on the map of the countries having advanced systems of electronic and digital means of money transactions to do business.”

Baqir said the central bank would make sure that the small and medium enterprises (SMEs) get financing from banks. He urged the chambers of commerce and industry to play their due part to promote SMEs.

SBP has introduced several incentives to support SMEs and boost exports. It launched export schemes with funding of Rs200 billion and allocated Rs500 billion as subsidy to provide loans with concessional interest rates to SMEs.