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State Bank indicates further policy moves amid lowering inflation

By Our Correspondent
June 04, 2020

KARACHI: The State Bank of Pakistan (SBP) on Wednesday hinted at further steps to shore up finances of private sector amid the coronavirus crisis, keeping lowering inflation under consideration.

SBP Governor Reza Baqir said the monetary policy committee had called emergency meetings in two months, while reducing interest rates by more than 500 basis points – the biggest cut in emerging markets.

“It was never in the history… We are considering the latest inflation numbers and would take action accordingly,” Baqir told analysts during an online briefing. “We are also ready to call monetary policy committee meeting,” he said.

Consumer inflation fell to 11-month low of 8.2 percent in May.

The governor the State Bank is data-driven and “if we think we should take action on the basis of data, we are ready for that”.

“Interest rate is one measure, we are also ready to bring in new schemes or change the existing ones,” he said, referring to a number of refinancing incentives announced by the central bank to keep liquidity of businesses intact amid lockdown. Baqir said businessmen groups, in several meetings with the central bank, demanded more flexibility in payroll financing scheme.

“SBP has very little concerns on inflation. Emphasis is on growth now,” he said. “If inflation goes up because of food, experiences show it is reversible. Petrol and diesel price cuts will also affect inflation. Overall, inflation on average will go down.”

The governor said the SBP may review temporary economic refinance facility and is open to something on this as interest rates have come down since its announcement. Under the scheme for balancing, modernization and replacement and expansion of existing projects, the SBP refinances banks for their onward extension of financing at maximum end-user rate of seven per cent for 10 years. Baqir said the SBP’s key priority is to inject liquidity into the small and medium enterprise sector. The governor said the resources are more than adequate to cover needs. “We have enough resources to support external account sector,” he added. “Our exchange market is stable and if there are any day to day or week to week ups and downs, this is not unusual.”

Baqir said freelancers working online may help compensate for the loss remittances. “Savings from oil imports is more than compensating for decline in exports and remittances,” he said. “Exports are also improving.” The governor said the SBP is working to include investment in treasury bills, savings scheme and stock markets in the scope of upcoming digital accounts for overseas Pakistanis. Baqir said financial inclusion is low, but it is improving. The governor said economic conditions were improving significantly before Covid, both financially and in terms of real economy.

The governor said total liquidity injection by the SBP has been Rs971 billion to mitigate impact of COVID-19. Around Rs500 billion loans have been deferred and Rs71 billion restructured. Banks deferred payments on loans worth Rs494 billion for up to one year as of May 29, while the number of cases was 697,294, the central bank’s data showed. Around Rs71 billion loans have been restructured or rescheduled so far. Banks have offered a one-year freeze on loan repayments as part of the principal deferment scheme introduced by the SBP to help lockdown-hit businesses.

At least 828,700 borrowers applied to various banks for deferment, restructuring and rescheduling of loan repayments.

Banks have sanctioned Rs93 billion in concessional loans to 1,172 companies for payment of wages and salaries to their staffers and workers, preventing job cuts. This financing would protect 864,637 employees. Businesses that benefit from this scheme committed not to lay off workers for three months. Further, banks sanctioned Rs4.8 billion loans till May 21 under the finance scheme for hospitals fighting the spread of coronavirus in the country. Twenty four hospitals have benefited from this scheme so far.