ISLAMABAD/KARACHI: Pakistan's central bank reduced its key policy rate by 50 basis points to 9.5 per cent until mid-January, the State Bank of Pakistan (SBP) said in a statement on Saturday.

The bank said favourable trends in global commodity prices, lower inflation and limited damage from recent floods were the main reasons behind the decision.

The decision was taken by the central board of directors of SBP at its meeting held under the chairmanship of Governor Ashraf Mahmood Wathra in Karachi.

The meeting observed that CPI inflation (YoY) in October, 2014 has come down sharply to 5.8 per cent.

“This decline is explained by: smooth food supplies, which contained the price of perishable items; falling administered prices, which incorporate the fall in international commodity prices, especially oil; low inflation expectations, as witnessed by IBA-SBP consumer confidence surveys; and a significant base effect,” said a handout given to the media.

Pakistan last week almost qualified for the release of a $1.1 billion installment from a International Monetary Fund (IMF) facility despite political turmoil and recent floods.

After two weeks of talks with the Pakistani finance minister and officials in Dubai last week, the IMF had said it was encouraged by the strong fiscal performance achieved during the year 2013-14.

The IMF mission will submit its report to the IMF Executive Board in December to conclude two more reviews, after which $1.1 billion will be made available to Pakistan upon board approval.

The IMF granted an extended fund facility to cash-strapped Pakistan in September 2013 on the condition that it carry out extensive economic reforms especially in energy and taxation sectors – PPI/Reuters/AFP