The State Bank of Pakistan unexpectedly dropped its discount rate 50 basis points to 13.50% from 14.00%. The Bank said: “The key parameter in this assessment is the outlook of inflation that indicates that average inflation in FY12 is expected to remain in line with the announced target. No adjustment in the interest rate would have entailed further tightening of monetary policy in real terms, which is not warranted given the decline in private investment.” The Bank also noted: “Pakistan’s economy is currently facing three broad challenges in the shape of persistence of inflation at a high level, falling private investment and low growth, and rising total debt due to a low tax to GDP ratio.”