Monetary Policy: SBP cuts key rate by 50bps to 8pc

Analysts had been hoping for a cut, following a drop in inflation triggered by lower oil prices, even though the State Bank of Pakistan cut the rate by one percentage point at its last meeting in January.

“An increasing number of economic indicators in the current fiscal year have moved in a favorable direction,” the bank said in a statement.

“Headline consumer price inflation continues to follow a downward trajectory and is expected to be well below the annual target of 8 percent.”

It projected an inflation rate of between 4 and 5 percent for the full calendar year.

“At the same time, GDP growth is on course to surpass the FY14 outcome. Owing to recent foreign exchange inflows and lower oil price, the external sector outlook continues to improve.”

The government of Prime Minister Nawaz Sharif, which came to power in 2013, is under pressure to do more to revive the economy, solve crippling power shortages and create favourable conditions for badly needed foreign investment.

The International Monetary Fund (IMF) saved Pakistan from possible default in 2013 by agreeing to lend it $6.8 billion over three years.

The monetary policy rate is the rate at which commercial banks are allowed to borrow from the central bank’s discount window. The central bank uses this tool to control money supply in the economy.