Rates have already been cut 425 bps in two months. Covid-19 shock necessitated relief to the economy. The businesses had to be kept afloat & liquidity needed to be pumped to ensure that businesses don’t die nor are wiped out. Aggregate demand needs to be pulled & jobs protected to avoid cascading domino effect.

Host of other measures done; wage refinancing, 7% TERF for BMR & new projects, relaxation for importer/exporters, principal deferment, reduction in capital req. & 40% principal loss born by Federal government.

The easing space has been partly “financed” by falling oil prices materially improving inflation outlook to 7-9% FY21. SBP remains “forward” looking & relatively, has modest “real” interest rates vs other countries.

Pakistan has secured $1.4bn from IMF, $2bn from ADB & WB, rescheduled $1.8bn with China, UAE & Saudi & expect $2-3bn debt relief from G-20.

The Capital Account seems under control in the short term. Despite exports unlikely to recover in few months, Current Account also appears manageable in wake of falling oil prices.

Let’s not ease so much that we tighten tomorrow. Currency & bond markets are stable but aggressive easing now may create unwarranted volatility. Carefully.

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SBP Monetary Policy Committee 15th May : Expect another 50-75bps cut

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