(Adds central bank quotes and context)
By Syed Raza Hassan
KARACHI, Pakistan June 25 (Reuters) - Pakistan’s central bank cut its main interest rate by 100 basis points to 7%, the bank said in a statement on Thursday, in an unannounced move marking the country’s fifth cut since the coronavirus began to spread through the country in March.
The South Asian nation’s economy has reeled under the effects of the pandemic, with economic activity coming to a grinding halt, prompting the central bank to cut rates by 625 basis points from a rate of 13.25% three months ago.
“This decision reflected the Monetary Policy Committee’s view that the inflation outlook has improved further, while the domestic economic slowdown continues and downside risks to growth have increased,” the statement from the State Bank of Pakistan (SBP) said.
Inflation has come down considerably from a high of 14.56%, year on year, in January to 8.22% in May.
The government is targeting average inflation to be 6.5% in the financial year 2020-21, which begins on July 1.
Against the backdrop of receding demand-side inflation risks, the priority has shifted toward supporting growth and employment during these challenging times, SBP said.
Pakistan’s economy will contract 0.4% in the current year ending June 30, according to government estimates. It has targeted growth of 2.1% in the next financial year.
An IMF report released this week projected financial year 2020-21’s growth rate to be 1% while the World Bank’s economic outlook put the figure at -0.2%.
The SBP’s monetary policy committee noted that the path to recovery was uncertain, referring to the IMF slashing its global growth outlook to -4.9%, 1.9 percentage points lower than in April.
SBP said its move to slash the rate is based on the repricing of loans worth 3.3 trillion Pakistani rupees ($19.80 billion) being due in early July.
“In this way, the benefits of interest rate reductions would be passed on in a timely manner to households and businesses.” ($1 = 166.7000 Pakistani rupees) (Reporting by Syed Raza Hasan; Writing by Gibran Peshimam; Editing by Toby Chopra and Alexandra Hudson)