The pandemic of Coronavirus has engulfed economic activities around the globe and the central banks are striving hard to bring relief in crashing stock markets and businesses. All the major stock exchanges including New York Stock Exchange, London Stock Exchange, Shanghai Stock Exchange, Nikkei etc. are facing consecutive plunges since the outbreak of COVID-19.
In an extraordinary effort to boost economic activity and support the falling markets, Federal Reserve in U.S. cut its interest rate from 1.25% to 0.25% along with buying bonds with billions of dollars of investment. Yesterday, on 16th March, Egypt’s Central Bank announced an unexpected cut in policy rate by 300 basis point from 12.25% to 9.25%. Egypt has the closest policy rate to Pakistan among emerging economies and such move to boost economy amidst of coronavirus crisis has put additional pressure on SBP to provide relief to its people.
Pakistan Stock Exchange (PSX) handled the situation well in expectations of better economic figures of low inflation and lower policy rate this year until recently when number of COVID-19 patients started showing up in Pakistan. PSX has lost over 6000 points during the past two weeks from around 39,296 points on 2nd March to 33,684 points on 16th March, 2020. The investors and brokerage firms are looking at the Federal government for providing some relief in this regard. The expected policy rate from SBP was already around 100-200 basis point lower than current rate as highlighted in the article here. However, the latest news of Egypt’s interest rate cuts of around 3% is now creating buzz among analysts and fund managers that SBP might cut off its policy rate by more than 2% today. The bond yields are already adjusted according to low policy rate expectations, however a further cut will affect returns in short run. The stock market (PSX), investors and general businesses will find relief in lower interest rates.
Update 17th March 2020: SBP has released Monetary Policy Statement and reduced the rate from 13.25% to 12.5%