ISLAMABAD: Pakistan's central bank cut its key policy rate on Friday by 50 basis points to 9.5 per cent from 10 per cent, it said in a statement.

The bank's Central Board of Directors said the decision was taken at a meeting on monetary policy following a decline in the inflation rate in recent months. The year-on-year consumer price index stands at 6.9 per cent in November, slowing from October's 7.66 per cent year-on-year rate.

In a statement, governor Yaseen Anwar said the decline in the consumer price index had been faster than earlier estimates.

Food supplies were more abundant than in the previous two years, he said, although the economy remained troubled by persistent energy shortages and a lack of credit.

“The consistently low level of credit availed by the private sector together with declining foreign investments are the main factors responsible for a stagnant economy,” said Anwar. The International Monetary Fund, though, has projected inflation to return to double digits by next year, which would complicate the task of the central bank as it tries to boost growth ahead of elections next spring.

The IMF expects Pakistan's gross domestic product to grow 3-3.5 per cent over the next financial year - not enough to provide jobs for the rapidly growing population.

Chronic gas and electricity shortages, violent crime and a Taliban insurgency have all hampered growth and contributed to falling foreign investment.