KARACHI: State Bank of Pakistan (SBP) on Saturday slashed the benchmark interest rates by 50 basis points to 6 per cent from 6.5 pc as lower fuel prices eased inflationary pressures.

Inflation decelerated to 1.7 pc in August from a year earlier, the bank said, and it predicts that inflation for the financial year ending in 2016 will remain below the target of 6 pc.

Lower borrowing costs and lower oil prices are helping Prime Minister Nawaz Sharif's government, who is under pressure to do more to revive the economy, end persistent power shortages and attract badly needed foreign investment.

Standard and Poor's earlier in May had revised Pakistan's credit rating outlook from stable to positive and forecast higher GDP growth for 2015 to 2017, amid a stint of economic reforms.

In March, Moody's upgraded Pakistan's dollar bonds rating by one notch from stable to positive.

Net foreign exchange reserves with the central bank reached $18.598 billion dollars this month from just $3.2 billion in January 2014.

The International Monetary Fund (IMF) had also voiced satisfaction with Pakistan's progress on reforms, which were required under a $6.6-billion bailout agreed in 2013.