EUR 8.54 For Business Accounts Only

Pakistan Economy: SBP moving along the curve, (AKD Daily, May 18, 2020)

• The MPC of the SBP delivered yet another 100bps rate cut (5.5% cumulative cut since March’20), citing improved inflation outlook following May’20 steep reduction in the Gov’t administered fuel prices (~20%) and countering COVID-19 containment spillovers by enhancing liquidity support to keep businesses afloat.
• This bold move from the central bank underscores two important points, namely, the economic pain of COVID-19 and resulting health challenge may be more adverse than earlier expected. Secondly and arguably of greater heft, the IMF is more accommodative than usual, seconding much-needed stimulus to the economy.
• While aggressive action hitherto has clearly narrowed room for further easing, we do not rule out additional monetary action yet, considering the high level of prevailing uncertainty (policy actions, re-opening, demand shocks, employment and recovery of cumulative consumption) due to COVID-19. Both length and intensity need to be closely monitored and may necessitate further monetary action.
• That said, the exact course of monetary action will be determined by the i) parallel fiscal policy – gov’t slated to present FY21budget in early Jun’20, where soft fiscal targets may create room for further easing – and ii) how the external account fares going forward, where higher than expected deterioration could restrict the SBP from further easing.
• With extended holidays looming, all eyes are set on Budget FY21, where comments from GoP functionaries, trade bodies and revenue authorities are likely to dictate sentiment at the bourse. In this regard, the GoP will have to triage the triple imperatives of taxation expectations (of specific industries demanding relief), with IMF stipulations while mitigating harm from COVID-19 pandemic.