SBP cuts interest rate by 100bps to 7%

[Syed1.]

https://twitter.com/x/status/1276118336401805314

https://twitter.com/x/status/1276118388511735808

This interest rate is the lowest in last 5 years, but patwaris told us that this government and SBP governer is IMF imposed and wants the destruction of Pakistan.

 

[FOOLS_NIGHTMARE]

A very good news to the Economy and the country, should never had been to raised to 13.75%. A sigh of relieve to the business community indeed.

 

[Bilal.]

A very good news to the Economy and the country, should never had been to raised to 13.75%. A sigh of relieve to the business community indeed.

Hopefully, further cuts in the near future.

 

[Syed1.]

A very good news to the Economy and the country, should never had been to raised to 13.75%. A sigh of relieve to the business community indeed.

Thank you for being objective and not opposing just for the sake of it.

 

[Imran Khan]

Thank you for being objective and not opposing just for the sake of it.

but i have a question ? this will benefit to rich industrialists ? i dont think poor will take loans from banks

 

[Syed1.]

but i have a question ? this will benefit to rich industrialists ? i dont think poor will take loans from banks

That is true, but the hope is the rich industrialists take loans and get their industries running which will give employment to the poor segments of society.

 

[313ghazi]

but i have a question ? this will benefit to rich industrialists ? i dont think poor will take loans from banks

We should think about why the poor don't get loans. Why are there barriers to finance for small and medium sized industries in our country? Maybe it's the culture of the banks, maybe it's the undocumented nature of the economy, maybe it's a lack of education of what is available in the part of the businessman.

These barriers need to be removed. Business in the west and even most large scale purchases are funded by finance. I don't think we should go whole hog down this route, especially as i consider the interest we pay as Haram, but at the same time, we need to find a way to free up finance - especially for businesses.

 

[El Sidd]

Only 7 percent war against Allah

 

[Jungibaaz]

https://twitter.com/x/status/1276118336401805314

https://twitter.com/x/status/1276118388511735808

This interest rate is the lowest in last 5 years, but patwaris told us that this government and SBP governer is IMF imposed and wants the destruction of Pakistan.

I think your misunderstanding this. SBP rate decisions are meant to be independent of government political influence. They are simply mandated to target around a 2% inflation, for as long as the space is there, they will adjust rates upwards to control inflation.

In this case, it really isn’t something the government can take credit for. When economies face downturn, central banks almost always cut rates. It costs them nothing, and it’s the main instrument of central bank policy.

So this rate cut is just a continuation in a long string of rate cuts, the rate was higher prior to this to control inflation, and now it is being cut in order to stimulate the economy through credit/lending growth.

You can think of SBP rates as a sort of lever being pulled in either direction in order to balance rate of inflation and the rate of growth. Too much inflation? Rate hike. Too little growth? Rate cut. Meeting inflation targets, no overly adverse economic effect? Stable rates. Etc

A very good news to the Economy and the country, should never had been to raised to 13.75%. A sigh of relieve to the business community indeed.

It was there to control inflation, it was always going to be eased. All that’s changed now is that covid will force SBP to cut further and cut quicker. I wonder where this rate will bottom out. Demand push inflation ought to be fairly low this year and next.

 

[ps3linux]

Regardless of one's association with one political party or the other, the accepted formula for policy rates/discount rates is 150 bps over and above inflation figures.

COVID 19 its impact on global economies and the fear of decreasing demand of oil, coupled with stupid saudis oil war led to a rapid decline in Oil prices. A significant portion of our imports is oil.

Due to lock down in one form or the other, restriction of movement and other factors have led to a significant decrease in demand of oil. Oil is the basis of transportation of goods/services and a large portion of energy production or movement of raw material for energy production (coal eg, requires local extraction, machinery which operates on oil, oil is used in machinery to transport, process the coal. Nutshell oil is more like blood)

Sum together, local demand has decreased thus Pakistan needed to import less, so lower expenditure of foreign exchange, resultantly probably better current account position. The situation improved even better as international oil prices went south so Pakistan had to spend even lower amount for import of oil.

Govt decided to pass the benefit of reduced international oil prices to the people thus two reductions in the local prices.

As established earlier, oil moves things in the economy when its prices decreased inflation figures started coming out better.

This gave SBP/GoP the breathing space necessary for reduction in policy rates.

Now the second part, policy rates not only impact the LSM, but its larger impact is on the total economy.
Most of the borrowings from the banks is on floating rates. Interest payment in business is a business expense, with stupidly higher interest rates like 13.25% it becomes impossible for any business to remain operation if it has any borrowing lines from the banks. So what business does is stop all expansions, cut down operational expenses, cost cuttings which result in jobs cut down thus increasing jobless people on the road. Now add COVID 19 to the picture, lock down, people spending less and less, spending on essentials only what is happening is that the business is not only suffering from higher interest rates but due to lack of demand of their product the business is now at risk of being shut down.

This is where role of Govts come, governments across the globe have reduced the interest rates/policy rates to help business remain afloat. In Many countries Governments have stepped in by offering incentives, tax cuts, direct payments to help small and large business alike remain operational.

It is nothing unique to Pakistan it is happening across the globe. The stupidity we have exhibited during ramadan i.e' denial of COVID 19, considering it a conspiracy and stupid media criticizing Govt over lock down is soon going to hurt us, the country and the economy in a very bad way. Economy is going to suffer, and as per my discussion with some friends in SBP we may even see policy rates so low in Pakistan that have never been seen, in the likes of 4-5%.

These rates too will hurt the economy, more on it some other time. But these lower rates although are welcome but nothing to cherish about, as challenges ahead are monumental, when we add an idiotic cabinet, corrupt bureaucracy, looming war, global recession, decrease in export well I shudder.

@Mangus Ortus Novem

 

[darksider]

but i have a question ? this will benefit to rich industrialists ? i dont think poor will take loans from banks

around 6 months ago I tried to get a loan for starting a business but the loan was very costly so i abandon the idea.
just a week ago i checked it again it was on 10%.i hope they will bring it on reasonable level so people can benefit it.
and this it will be real reduction not just on papers.

 

[Imran Khan]

around 6 months ago I tried to get a loan for starting a business but the loan was very costly so i abandon the idea.
just a week ago i checked it again it was on 10%.i hope they will bring it on reasonable level so people can benefit it.
and this it will be real reduction not just on papers.

dont take loan from banks they will kill you man . only elites can take loan and then did not return it while enjoying .

 

[Mumm-Ra]

I think your misunderstanding this. SBP rate decisions are meant to be independent of government political influence. They are simply mandated to target around a 2% inflation, for as long as the space is there, they will adjust rates upwards to control inflation.

In this case, it really isn’t something the government can take credit for. When economies face downturn, central banks almost always cut rates. It costs them nothing, and it’s the main instrument of central bank policy.

So this rate cut is just a continuation in a long string of rate cuts, the rate was higher prior to this to control inflation, and now it is being cut in order to stimulate the economy through credit/lending growth.

You can think of SBP rates as a sort of lever being pulled in either direction in order to balance rate of inflation and the rate of growth. Too much inflation? Rate hike. Too little growth? Rate cut. Meeting inflation targets, no overly adverse economic effect? Stable rates. Etc

It was there to control inflation, it was always going to be eased. All that’s changed now is that covid will force SBP to cut further and cut quicker. I wonder where this rate will bottom out. Demand push inflation ought to be fairly low this year and next.

Thank you for writing this. Many people do not understand the relationship between inflation and lending rate.
One slight correction, the inflation target for SBP is between 4%-6%.

Almost all developed countries have interest rates in 0-0.25 range and record stimulus meaning central banks are buying govt./ Corporate bonds. Though, I doubt what will be the effect of any stimulus in Pakistan as such

 

[313ghazi]

around 6 months ago I tried to get a loan for starting a business but the loan was very costly so i abandon the idea.
just a week ago i checked it again it was on 10%.i hope they will bring it on reasonable level so people can benefit it.
and this it will be real reduction not just on papers.

This is a perfect example of what I mean. People like you need access to loans at an affordable rate so you can start businesses. If the cost of the loan is too high, it prohibits the creation of new business.

 

[Enigma SIG]

dont take loan from banks they will kill you man . only elites can take loan and then did not return it while enjoying .

They're the modern version of brick kiln owners. They'll chain you and your future 5/6 generations in perpetual slavery.