Inflation easing paves way for another rate cut

By Asad Rizvi

PAKISTAN INFLATION for April 8.5% YoY. The fall is in line of expectation, but is likely end up in double digit in FY20. However, overall trend for next 6-months will remain soft & expect to see single in 1st QTR of next FY (Sept 2020). Keeping in view the threat of CORONA PANDEMIC, which could further hurt exports, unless nature shows leniency.

It is therefore necessary that economic recovery packages being rolled out by the SBP & the Government is used more effectively/efficiently to strengthen the business environment.

To arrest further meltdown, Pakistan’s Fiscal & Monetary managers should act proactively by further reducing Policy Rate and more importantly provide sufficient liquidity to stimulate economic activity. SBP, should do away with its policy of buying government paper & instead to bring back the flagging economy back on track, it can apply unconventional monetary policy tool by buying less.

To fight against the Coronavirus pandemic SBP in line with Fiscal measures taken by providing “HELICOPTER MONEY “, through “EHSAS” program, should provide ample of liquidity in the inter bank market by widening the corridor. Increase it by 400 basis point, so that banks do not unnecessarily park their funds with SBP.

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