The State Bank of Pakistan (SBP) cut its benchmark interest rate on Friday by 100 basis points to eight per cent, the fourth time it has cut rates since the coronavirus pandemic hit two months ago.

“Easier monetary policy ... can provide liquidity support to households and businesses to help them through the ensuing temporary phase of economic disruption,” the SBP said, adding the likelihood of surging inflation expected earlier in the year had also reduced.

The bank has cut rates by a total of 525 basis points since the beginning of the health crisis two months ago and has announced a package of measures to support poorer workers hit by the pandemic as well as offering risk sharing with private banks on concessional lending to boost liquidity.

Before the crisis hit, the bank had held rates at an elevated level of 13.25pc for months as it sought to rein in inflation which rose to more than 14pc in January. Falling oil prices now make inflation less of a concern.

Friday's rate cut “reflected the [monetary policy committee's] view that the inflation outlook has improved further in light of the recent cut in domestic fuel prices”, the bank said.

“As a result, inflation could fall closer to the lower end of the previously announced ranges of 11-12pc this fiscal year and 7-9pc next fiscal year.”

The decision comes around a fortnight before the government announces the 2020-21 budget, aimed at finding ways to generate revenue and cut expenditures.

Due to a shortfall in revenue, re-prioritising of expenditure and increase in public spending, the post-pandemic fiscal deficit could reach as high as 9.4pc, against an earlier projection of 7.4pc, according to finance ministry documents seen by Reuters.

The government began a phased lifting of the countrywide lockdown last week despite a rising rate of cases — a move pushed primarily by fears of an economic meltdown. The country has so far registered more than 38,000 Covid-19 cases and 821 deaths.

“Easing lockdowns ... should help provide support to economic activity. Nevertheless, as elsewhere, the situation remains highly uncertain,” the SBP said.

“A possible rise in infections could prompt fresh lockdowns, and the recovery could prove more sluggish than is currently being anticipated.”