At 10:45 UTC, USD/PKR is trading at 159.15, after opening the session at 158.30.
SNP Slashes Rates To 12.5%
The State Bank of Pakistan cut interest rates on Tuesday by 75 basis points. This takes the interest rate from 13.25% to 12.5%. The central bank decided to cut interest rates based on the expectation of falling inflation and also in response to growing concerns over the coronavirus pandemic and its impact on both domestic and foreign demand.
The State Bank of Pakistan now expects inflation to be 11% – 12% this year before falling to the target of 5%-7% in the medium term. Inflation was 14.6% in January. This fell to 12.4% in February and currently stands at 11.7%. With oil now sharply lower at just $26 per barrel, inflation could decelerate further.
US Dollar Soars As GDP Expected To Collapse In Q2
The US Dollar is charging higher across the board. Investors are selling everything, including safe haven gold, to hold US dollar cash, whilst businesses are drawing down loans to hoard the greenback. This level of rotation into cash in only seen in times of extreme uncertainty. The level of fear surrounding the economic impact of coronavirus has so far been unstoppable.
The change in the economic outlook of the US in a month a has been astonishing. Just one month ago the US was looking at economic growth in the region of 2.8%. Economists are now forecasting (in the loosest possible sense) an annualised GDP contraction of -8.6% in the second quarter of this year. To put the number into context, the US economy contracted by -8.4% in the fourth quarter of 2008 in the financial crisis.
Consumer spending will be mostly responsible for the decline in GDP. Should reduced spending result in increased job losses, the situation could spiral out of control very quickly, turning a recession into a potential depression.