Inflation is expected to decrease further in the future and the central bank is ready to “take action” in the coming days regarding the interest rate if the situation required so, Governor State Bank of Pakistan, Reza Baqir, said on Friday.
Baqir was speaking to anchor Shahzeb Khanzada on Geo News’ program ‘Aj Shahzeb Khanzada Ke Sath’ when he said that the central bank takes decisions about the interest rate by taking into account the inflationary situation in the days to come.
“The statistics that we have with us clearly show that inflation is expected to decrease further in the coming days,” he said. “As we keep receiving information about the country’s economy, the State Bank will be ready to take action in future about the interest rate,” he added.
He said that it was extremely important for the government to focus its energies on employment and economic growth. The SBP governor said that Pakistan had cut its basis points by 255 which was the second-highest decline in the world.
Speaking further about the SBP’s new scheme, Baqir said that businesses who do not lay off employees will be able to avail loans on a 5% rate. “Businessmen who are on the active tax list will be able to avail loans on 1% interest rate as well,” he said.
Baqir said that the scheme’s policies favored small businesses more than the larger ones. He said that businesses whose salaries expenses amounted to less than Rs20 crores could secure the entire amount as a loan. For businesses whose salaries expense amounts to more than Rs50 crores, they can avail half of that amount in loans and if it falls between Rs20-Rs50 crores, then those businesses can avail 75% of the same amount as a loan.
‘Impact would’ve been far worse if coronavirus had emerged earlier’
In response to a question about Pakistan’s declining reserves, Baqir said that Pakistan’s economic indicators were improving before the outbreak of the coronavirus. “If this infection would have arrived in Pakistan sometime earlier, the impact would have been much severe and our reserves would have declined even more,” he said. “Our economic fundamentals were strengthening, the stock market was on the rise and the exchange rate was also stabilizing. Investors had confidence in our market. The reserves declined due to commercial repayments,” he added.
He said that the government’s schemes and stimulus packages were supported by its international partners and donors. Baqir pointed out that the International Monetary Fund planned to provide Pakistan $1.4bn to deal with the pandemic. He further revealed that the World Bank and Asian Development Bank were ready to provide loans to Pakistan at concessional rates as well.
“I would urge you to view Pakistan’s situation keeping in mind the global context,” he said. “In Pakistan, the exchange rate has fallen by 7% whereas, in Mexico and Brazil, the same has declined by 19% and 20%.”
Responding to another query about hot money leaving Pakistan, the SBP governor said that people had a misperception that interest rate was linked to the arrival of hot money in a country. “Pakistan’s interest rate reached its peak at 13.5% some time ago but the country did not receive any hot money,” he said, adding that this was proof enough that the two were not connected to each other.
He admitted, however, that hot money was leaving the country but at a slower rate than before. Baqir said that the government was focused on supporting industries, maintaining employment and domestic issues at the moment.
‘Not the time to get involved in such things’
When asked about a media report which said that the finance ministry and the central bank were at loggerheads with one another as the former wanted to clip the latter’s authority, Baqir requested people not to speculate on such issues when the country was going through a crisis.
“The economic team is being led by our advisor on finance, Abdul Hafeez Shaikh,” he said. “I would like to request everyone that this is not the time to get involved in such things. The economic team is moving forward with unity and is ready to cooperate to meet our challenges.”
Talking about the source of the funds for the SBP’s schemes, he said that domestic liquidity was high in Pakistan due to which banks were supporting the government’s initiatives. Baqir reiterated that Pakistan had the proper support and backing of its international partners who would provide it with loans to revive the economy.
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