If the newly appointed SBP Governor, Jameel Ahmed, is serous in accelerating Pakistan’s GDP growth rate, he must reduce interest rate. Let me reiterate once again that Pakistan suffers from cost-pushed inflation. Therefore, reduction in interest rate is a must for easing inflation.
The SBP Monetary Policy Committee must take a cue from China. It has reduced benchmark lending rates on today, adding to easing measures announced last week. This is one of the signs that Beijing is stepping up efforts to spur credit demand in an economy hobble by a property crisis and a resurgence of COVID infections.
The one-year loan prime rate (LPR) was lowered by 5 basis points to 3.65% at the central bank's monthly fixing, while the five-year LPR was slashed by a bigger margin of 15 basis points to 4.30%.
In a Reuters poll conducted last week, 25 out of 30 respondents predicted a 10-basis-point reduction to the one-year LPR. All of those in the poll also projected a cut to the five-year tenor, including 90% of them forecasting a reduction larger than 10 bps.
Most new and outstanding loans in China are based on the one-year LPR, which is now loosely pegged to the central bank's medium-term lending facility (MLF) rate, while the five-year rate influences the pricing of mortgages.
