KARACHI, Sept 13, 2015: Pakistan's central bank yesterday reduced interest rates to a 42-year-low of six percent, after inflation fell dramatically.

The State Bank of Pakistan (SBP) announced it had cut rates to six percent from 6.5 percent.

Inflation came down to 3.6 percent in July-August from 8.4 percent in the same period last year due to falling fuel and food prices.

The SBP added the Pakistan economy would receive a boost from infrastructure projects such as the planned China Pakistan Economic Corridor (CPEC).

"Therefore, there is anticipation of higher economic activity in (fiscal year) FY2015-16 which is expected to boost credit uptake," the bank said.

The Pakistan fiscal year begins in July.

The China-Pakistan Economic Corridor (CPEC) is an ambitious $46 billion investment plan linking western China to the Arabian Sea in Pakistan with infrastructure, energy and transport projects.

Pakistan is set to sign a 40-year-lease with a Chinese company to develop a massive special economic zone in the deep sea port of Gwadar as part of the scheme.

Pakistan's economy grew at 4.24 percent during the 2014-2015 fiscal year with per capita income rising a significant 9.25 percent, markers that come as investor confidence in the long-underperforming South Asian country have also increased.

Pakistan is currently in a $6.6 billion loan programme with the International Monetary Fund, which was granted on condition that Islamabad carried out extensive economic reforms, particularly in the energy and taxation sectors.