KARACHI: The State Bank of Pakistan (SBP) on Saturday slashed the basic interest rates by one per cent to a 10-year low on the back of improving economic indicators at home.

Addressing a press conference in the country's financial capital Karachi, the governor of the central bank Ashraf Mehmood Wathra said the discount rate was being lowered by one per cent to 8.5 per cent.

“Central board of directors has decided to reduce the SBP policy rate by 100 basis points from 9.5pc to 8.5pc effective from 26th January 2015,” he said.

The central bank also revised its inflation rates projection for the current fiscal year from 4.5pc to 5.5pc, compared to an earlier target of 8pc.

Reduction in inflation rates was the result of a staggering drop in the global oil and other commodities prices.

“Given the reduction in domestic oil prices and its second round impact, such as on transport services, inflation is likely to decrease further going forward,” Wahtra said.

Pakistan has successfully completed the International Monetary Fund's (IMF) 4th and 5th reviews linked to a $6.6 billion loan programme in November leading to release of $1.1 billion in December.

The Washington-based lender granted the extended fund facility to Pakistan in September 2013, on the condition that it carries out extensive economic reforms especially in the energy sector and tax system.