Governor SBP Syed Salim Raza announced this while addressing a press conference for the announcement of Monetary Policy Statement (MPS) here today at SBP head office.

The State Bank of Pakistan cut its rate by 50 basis points to 12.5 percent on Nov. 24 after keeping it unchanged at 13 percent in September.

Bank governor Syed Salim Raza said average inflation for the 2009/10 (July-June) fiscal year was expected at 11 to 12 percent, down from 20.77 percent last year.

Inflation was 10.52 percent year-on-year in December, after hitting its slowest pace in 22 months in October.

But Raza said steps were needed to maintain the stability.

"Much has been gained with respect to macroeconomic stability in a challenging economic and security environment," Raza told a news conference.

"However, work needs to be done to consolidate the stability," he said.

Pakistan's economy has been hit hard as it battles Islamist militants in the northwest.

An International Monetary Fund (IMF) loan package of $7.6 billion agreed in November 2008 helped avert a balance of payments crisis and shore up reserves.

The IMF increased the loan to $11.3 billion in July last year and the central bank received the fourth tranche in December.