SBP cuts interest rate by 1pc

[LahoreEstate]

KARACHI - The State Bank of Pakistan (SBP) on Saturday cut its key policy rate by 100 basis points to 13 per cent from the earlier level of 14 per cent, which will be effective from Monday (August 17).
Governor SBP Syed Salim Raza announced the decision while unveiling the Monetary Policy Statement (MPS) for the first quarter of the current financial year 2009-10 (July-September) at a news conference held at the SBP premises on Saturday.
He said the central bank has taken some important initiatives in the area of monetary management with an aim to improve liquidity position and to smooth the functioning of money market in the days to come.
He said an independent monetary policy committee (MPC) is being constituted comprising of external experts as members in addition to the SBP and SBP Board representatives. The inclusion of external members is planned for ensuring that the bank benefits from the expertise and independent views concerning monetary policy saying, “This step will link us with best international practices by enhancing the transparency and credibility of monetary policy formulation process.”
The SBP governor also announced to increase the frequency of monetary policy decisions from four to six times a year, that is after every two months. Henceforth, monetary policy decisions will be announced in the last week of September, November, January, March, May, and July.
The January and July policy announcements will be accompanied with a detailed monetary policy statement and a news conference, he said, adding that on remaining four occasions, the policy decisions would be communicated through a brief press release only. “High frequency of MPS announcement will provide greater clarity in how changing economic conditions are being addressed,” he emphasised.
He also informed about introduction of a corridor for the money market overnight repo rate, from Monday (August 17) and said the SBP policy rate will serve as a ‘ceiling’, the repo rate on the new overnight deposit facility, 300 bps below the SBP policy rate, thus providing a ‘binding floor’.
“The introduction of this framework will improve liquidity management, enhance effectiveness of market signalling, and foster stability and transparency in market operations,” he said, adding that it would also improve transmission of monetary policy signals, strengthening its role in fostering price stability.
He said the GDP growth is envisaged at 3.3 per cent during FY10 on the better prospects of momentum in the country’s real economic activity and recovery in global economy.
Despite slippages from the budget estimates, the fiscal deficit for FY10 was expected to be well below the 7.6 percent deficit of the previous year, he maintained.


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