The State Bank of Pakistan on Saturday reduced interest rates to a 42-year-low of six percent, after inflation fell dramatically.
The central bank announced it had cut rates to six percent from 6.5 percent. Inflation came down to 3.6 percent in July-August from 8.4 percent in the same period last year due to falling fuel and food prices. The State Bank added Pakistan’s economy would receive a boost from infrastructure projects such as the planned China-Pakistan Economic Corridor (CPEC). “Therefore, there is anticipation of higher economic activity in FY2015-16 which is expected to boost credit uptake,” the bank said.
Pakistan’s fiscal year begins in July.
The China-Pakistan Economic Corridor (CPEC) is an ambitious $46 billion investment plan linking western China to the Arabian Sea in Pakistan with infrastructure, energy and transport projects. Pakistan is set to sign a 40-year-lease with a Chinese company to develop a massive special economic zone in Gwadar as part of the scheme.
Pakistan’s economy grew at 4.24 percent during the 2014-2015 fiscal year with per capita income rising a significant 9.25 percent, markers that come as investor confidence in the long-underperforming South Asian country have also increased. Pakistan is currently in a $6.6 billion loan program with the International Monetary Fund, which was granted on condition that Islamabad carried out extensive economic reforms, particularly in the energy and taxation sectors.