Pakistan Cuts Key Interest Rate to Spur Growth: WSJ

By HARIS ZAMIR and NEELABH CHATURVEDI

KARACHI -- Pakistan's central bank Monday trimmed its key interest rate for the first time in more than six years to boost an economy battered by internal strife and a global downturn.

The State Bank of Pakistan cut the discount rate by 1 percentage point to 14%. The cut is effective Tuesday, Governor Syed Salim Raza told reporters at a news briefing.

"The falling inflation rate and the projection that it will come down before the end of the current fiscal (financial) year gave room for the rate cut," Mr. Raza said.

Nine out of 11 economists polled by Dow Jones Newswires had expected the central bank to cut rates at the policy meeting. The remaining two had expected rates to remain unchanged.

The monetary easing marks a turnaround by the central bank, which raised interest rates by 5 percentage points in 2008 in a bid to cool the then-rising inflation, and suggests its policy priority is now on spurring South Asia's second-largest economy.

Headline inflation remains high but is now less of a threat to the economy, having eased to 19.1% in March from a multi-decade high of 25.3% in August due to a sharp fall in commodity prices. The economy is poised to grow at its slowest pace in eight years in the financial year through June.

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