This was stated by the Governor, State Bank of Pakistan, Yaseen Anwar while unveiling the Monetary Policy Statement (MPS) at a press conference at SBP Learning Resource Centre, here Friday.

He said the decision to keep the policy rate unchanged and reduce the interest corridor from 300 bps to 250 bps was taken at a meeting of the Central Board of Directors of SBP held under his chairmanship.

The decision to reduce the interest rate corridor was taken with the objective of improving transmission mechanism by minimizing short-term volatility in interest rates and to bring more transparency, he added.

He said the macroeconomic conditions weakened during H1-FY13 despite improvement in some key indicators. The CPI (Consumer Price Index) inflation came down quite sharply till November 2012 but has increased since then, he said, adding that the external current account posted a surplus during H1-FY13 but the foreign exchange reserves have declined, predominantly due to IMF repayments.

"The non tax revenues of the government received a boost after receiving Coalition Support Fund (CSF) of 0.7 percent of GDP during H1-FY13, yet the fiscal deficit is expected to miss the budgeted target by a wide margin", Anwar added.

Responding to a sharply declining inflation and, assigning a higher weight to contracting private investment, he said the SBP lowered its policy rate by a cumulative 450 basis point over the last 18 months. "SBP has also ensured that both the money and the foreign exchange markets remain stable. It also introduced certain measures to improve the liquidity management and financial intermediation aspects of the banking sector", he noted.

Copyright APP (Associated Press of Pakistan), 2013