Extraordinary Decisions

A cut of 1.5 percentage points in the discount rate is announced by State Bank of Pakistan in an unplanned meeting. While on the same day Prime Minister announced a trillion-rupee plus stimulus package. Which surely makes it an extraordinary day.  1.5 combined with last week's 0.75 discount rate cut makes it largest cut of the decade. With these measures, the government is now forced to support growth and manage package-induced instability. For example, the exchange rate, as the rupee fell by Rs 2.6 to the dollar the very next day after rate cut. Finance team may have thought it's the time for rate cuts and increased spending given the crashing oil prices, deflating economy and collapsing demand.  It's not their fault as the extraordinary situation demands extraordinary decisions but they must brace for inevitable market impacts. Finance team led by finance adviser and State Bank governor must appraise and prepare their government colleagues about those impacts. Swings are expected wherever the market is functioning. While demands for shoring up exchange rate must be managed and those going for a stock market bailout fund must be prevented.

Summarized from 395 words to 187

Detailed post can be found at Interest Rate Cut


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