By IANS,
Karachi : The State Bank of Pakistan (SBP), the country’s central banker has cut its policy rate by 100 basis points to 14 percent, it was announced here Monday.
Addressing a press conference here to release the Monetary Policy Statement for the April-June fourth quarter of fiscal 2008-09, SBP Governor Salim Raza said the rate reduction had been effected on the assumption that inflation will continue to decline, APP reported.
Inflation has declined on a year-on-year basis to 19.1 percent in March from a high of 25.3 percent in August 2008, Raza said, adding that with inflation for the fourth quarter estimated at 14 percent, the yearly average for the fiscal was projected at 21 percent.
According to the governor, improved fiscal discipline and reduction of the external current account deficit indicated that aggregate demand was showing a downward trend.
This would help narrow the output gap and strengthen the positive outlook for inflation, Raza maintained.
He said the fiscal deficit of Rs.251 billion (1.9 percent of projected GDP) for the first half of 2009 and the government’s commitment to cap it at Rs.562 billion (4.3 percent of projected GDP) for the entire year was a very significant improvement over last years 7.4 percent.
At the same time, the current account deficit had narrowed to $172 million in March, compared to $2.2 billion in October 2008, pointing to improved trends in external trade.
Raza also cautioned that the slowdown in domestic economic activity could lead to reduced tax revenues, adding that the government was planning corrective measures to overcome this.