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SBP cuts rate by another 1% to 8%

By Asad Rizvi

AS PER FORECAST, SBP CUT RATE BY 1% TO 8%. After Friday’s 1% SBP Policy Rate cut, which is as per my Forecast, SBP may go for a temporary pause. It is because after a $ 1.4 billion (RFI) request, which in my view is too tiny in terms of size.

Pakistan’s economy is left with a huge task to bridge its payment gap for the next fiscal years. Though G20 nations have agreed to freeze bilateral loan payments for the emerging economies and have also suspended debt payments, for the time being, it will provide breathing space.

Unfortunately, looking at the economic package size, payment terms & stimulus provided to the advance economies of nearly $ 10 Trillion, it is sad that low-income economies are provided small DEBT relief. Suspension of debt & more loans will add to their woes in the future, as they are loaded with additional debt with expectation of thin economic activity. Relief can be given to emerging economies by WAIVING of full DEBT amount or by waiving half the amount and by extending relief by 5-10 years.

While, tough economic conditions are unavoidable, in the 1st quarter of next fiscal year, Large Scale Manufacturing could plunge to double-digit. The service industry may struggle to attain a 1% growth & agricultural sector performance too, does not look very promising, unless a miracle happens.

From here onward, Policy Rate cut could go on hold until September, unless economic condition further worsens. Pause is also possible to attract carry trade opportunities through T/bills & Bonds. It’s is an easy & cheap source of funding that could be tapped, as a sizeable global stimulus package should gradually offer some stability.

In my short note to my SBP FORECAST. I have shown following areas of concern.

1)GLOBAL SLOWDOWN

2)CANCELLATION OF EXPORT ORDERS

3)INTERNATIONAL BORDER CLOSURE

4)LIQUIDITY CRUNCH

5)OIL PRICE HIKE

6)REMITTANCES DUE TO GULF MELTDOWN

Disclaimer: The opinions in this article are the author’s and do not necessarily represent the views of Mettis Link News (MLN)

Posted on: 2020-05-17T15:04:00+05:00

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