it down from 5.5percent.
The governor said the board decided to reduce the width of the corridor to 2 percent from 2.5 percent for ensuring predictability in the money market. “Now the upper ceiling is 7 percent while the floor will be at 5 percent,” he added.
Wathra also announced a new target rate, setting it at 0.5 percent lower than the key discount rate. “Although the key interest rate is 7 percent, the SBP will target the 6.5 percent rate and will ensure that the repo rate remains close to the target rate,” the SBP governor said. “These changes were consistent with the SBP plan announced in February and in line with best international practices.”
The central bank had shared the plan of reducing the corridor rate with the International Monetary Fund (IMF) and took them into confidence.
The governor said after previous reductions in the policy rates, two important developments took place including significant growth in long-term loans and trade financing quantum jump.
There were other factors like availability and prices of gas and electricity that also have affects on the industrial growth. Overcoming energy shortages and improving law and order conditions is expected to provide further impetus in reviving investment and higher production.
Real GDP is provisionally estimated to have grown by 4.2 percent in the current fiscal year of 2014/15, slightly higher than 4 percent in the last fiscal year, the SBP said in a statement.
“Overcoming energy shortages and improving law and order conditions is expected to provide further impetus in reviving investment and higher production,” the statement said. “Gradual realisation of planned investment in energy and infrastructure projects will provide additional boost to growth. Consequently, growth is expected to be revived at a relatively faster pace going forward.”
The statement said current account deficit has narrowed down; average annual inflation is significantly below the target; there is a marginal uptick in real GDP growth; and foreign exchange reserve buildup continues.
All these developments were reflected in the recent upgrades in outlook by international rating agencies that have further improved investor confidence.
With contraction in imports, led by sharp decline in oil prices, and strong growth in remittances, the external current account deficit at $1.4 billion during Jul-Apr FY15 is around half of the deficit recorded in the corresponding period of last year, it added.
The reserves are expected to increase further due to subdued outlook of international oil prices, successful continuation of IMF program, and realisation of expected official foreign inflows. Increase in foreign private inflows can further strengthen this outlook and sustain stability in the foreign exchange market.