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In the wake of worldwide oil price collapse that helps to curtail inflation rate, the State Bank of Pakistan (SBP) has reduced the policy rate by 100 basis points from 9.5 percent to 8.5 percent effective from 26th January 2015.
This was announced by the SBP Governor Ashraf Mahmood Wathra at a crowded press conference on Saturday where he indicated the positive economic indicators helped in bringing down the interest rate to 7-8 year low, which will be an attraction for the private sector and the investment climate in the country.
Mr. Wathra said that some of the key macroeconomic indicators had improved further since the last Monetary Policy decision of November 2014. "CPI inflation and its expectations continue to follow a downward trajectory. In the last two months of November and December 2014, trade deficit has declined, though it has increased in H1-FY15 when compared to H1-FY14. Moreover, considerable foreign exchange inflows have contributed in maintaining an upward trajectory in foreign exchange reserves."
According to Governor SBP, containment of fiscal deficit thus far is also encouraging and bodes well for the credibility of consistent and coherent policies of the government and for the continuation of official and private capital inflows. With these positive developments, first half of the current fiscal year ended on a better macroeconomic outlook for the remaining months of FY15.
Mr. Wathra termed the decline in inflation broad-based since both food and non-food inflation were declining. The deceleration in the former is mainly the result of better supply conditions, while the...