Business English

KARACHI: Pakistan’s central bank unexpectedly increased its key policy rate by 50 basis points to 13 per cent on Friday as inflation and fiscal weakness is overshadowing improvement in the current account deficit and economic growth.

 

The central bank’s acting governor Yaseen Anwar said a change in monetary policy was needed to mitigate risks to economic stability.

 

“Therefore, SBP is increasing the policy rate by 50 basis points to 13 percent with effect from Aug. 2,” Anwar said.

 

In a Reuters poll, 12 of 15 analysts expected the central bank to keep its policy rate unchanged for August and September.

 

The rate decision came after Pakistan markets had closed but analysts said the move could trigger a drop in shares KSE early on Monday, reversing a 0.9 percent gain on Friday.

 

The State Bank of Pakistan (SBP), which meets to discuss monetary policy every two months, kept the rate unchanged at 12.5 percent on May 24.

 

Inflation averaged 11.7 percent in the 2009/10 fiscal year ending in June, 2.7 percentage points higher than the central bank's target and Anwar said current trends and expected developments indicated that inflation risk would continue through the 2010/11 fiscal year.

 

This is due to a rise in electricity prices, an increase in the general sales tax and a revision in government employees’ wages.

 

Anwar said Pakistan missed its fiscal deficit target of 5.1 per cent for 2009/10 and it could be higher than six per cent.

 

Under an IMF programme agreed in November 2008 for a two-year emergency package totalling $10.66 billion, Pakistan's government also agreed to zero net borrowing from the state bank.

 

According to official data, the government overshot that target by 41.93 billion rupees ($490 million) in 2009/10, a cause for concern among economists and analysts.

 

“Clearly, such developments are inconsistent with the objectives of macroeconomic stability,” Anwar said, adding that a deficit target of 4 percent of GDP for the 2010/11 fiscal year already seems challenging. The deficit could exceed 5.0 percent of GDP, he said.

The central bank also stressed the need to “urgently” increase the tax-to GDP ratio and boost revenue for sustainable economic growth.

 

Increased government borrowing from the central bank increases money supply, which in turn can fuel inflation.

 

The IMF said in its country report on Pakistan last month that it had held discussions with the government focusing on the fiscal programme and also “a possible tightening of monetary policy to address the rebound in inflation”.

Pakistan's central bank on Friday announced an unexpected increase in its key policy rate to 13 percent from 12.5 percent, saying it needed to fight inflation and counter a widening fiscal deficit.

Violent protests rocked the Bangladesh capital Dhaka as thousands of garment workers took to the streets Friday, with police reporting widespread looting and vandalism.

Pakistan's central bank on Friday announced an increase in its key policy rate to 13 percent from 12.5 percent, reinforcing its fight against inflation and a widening fiscal deficit.

Malaysian crude palm oil was steady on Friday, supported by gains in soybean and uncertainty over grains crop harvests due to adverse weather which would slow global vegetable oil supplies.

Europe's main stock markets fell on Friday as investors looked ahead to key economic growth figures from the United States, after dissecting news of a major takeover, company earnings and eurozone data.

The State Bank of Pakistan will unveil Monetary Policy Statement (MPS) today (Friday), with expectations of no change in key policy rate owing to persistent inflationary pressure on the economy.

Minister for Commerce Makhdoom Amin Fahim on Friday informed the Upper House of the Parliament that the trade deficit from June 2009 to April 2010 was $ 14.040 billion.

Prime Minister Syed Yusuf Raza Gilani has called for joint concerted efforts to make the economic relations between Pakistan and China commensurate with the level of political ties between the two sides.

British Airways on Friday said net losses widened to 122 million pounds during its first quarter as strike action and the Icelandic ash cloud grounded flights, but insisted it was set to break even.

Pakistan State Oil (PSO) has bought up to 1.025 million tonnes of fuel oil for August to October delivery at higher price levels compared to its previous quarterly tender, traders said on Friday.

Japan's unemployment rate ticked higher while production of automobiles and electronic gadgets slipped in June, data showed on Friday, in a mixed picture for the world's second-largest economy.

The International Monetary Fund on Friday said more stimulus spending might be needed to aid a slow US economic recovery, wading into a toughly-fought political debate in Washington.

Fears of a slowdown in the United States and poor economic data out of Japan pushed Asian markets lower on Friday as dealers took the opportunity to cash in recent gains.

The dollar eased further in Asian trade on Friday amid growing concern over the prospects of the world's top economy as investors awaited a US economic growth report due out later.

Oil prices tumbled in Asian trade Friday on profit-taking ahead of a key report expected to show that the US rebound from recession is losing pace.

KARACHI: Pakistan’s total liquid foreign reserves stand at dollars 16.5578 billion, said statement issued by State Bank of Pakistan here on Thursday.

On July 23, 2010 the foreign reserves held by State Bank amounted dollars 12.7657 billion. The net foreign reserves held by banks other than SBP figured dollars 3.7921 billion.

Malaysian crude palm oil rose 1.1 percent on Thursday on concerns that weather uncertainty on grains crops worldwide would curb global vegetable oil supplies in the medium term.

Malaysian crude palm oil rose 1.1 percent on Thursday on concerns that weather uncertainty on grains crops worldwide would curb global vegetable oil supplies in the medium term.

Euro zone economic sentiment improved more than expected in July, buoyed by strong figures from Germany, data showed on Thursday, pointing to continued economic recovery in the third quarter.

Police began questioning French Labour Minister Eric Woerth on Thursday as a witness in an investigation into a political donations scandal that has rocked the government.

European shares rose on Thursday, boosted by strong company earnings as results from AstraZeneca and Capgemini pleased investors.

Oil prices were mixed in range-bound Asian trade on Thursday, with sentiment weighed down by slower energy demand in the United States and weaker Asian stock markets.

The dollar lost ground in Asian trade Thursday after a warning from the US Federal Reserve that the world's top economy was slowing in some areas, adding to the view that recovery was stalling.

ISLAMABAD: With rising overdraft to Rs39 billion, the Pakistan State Oil (PSO) on Wednesday gave an ultimatum to power companies to clear their dues by July 31.

A PSO spokesman told that if the companies do not pay their dues by the given deadline the PSO will cut off their supplies.

The spokesman said HUBCO, KAPCO and WAPDA have to pay Rs55 billion, Rs20 billion and Rs45 billion respectively.

“PSO’s total receivables stand at Rs139 billion. While our over draft limit has almost reached the ceiling of Rs40 billion,” the spokesman elaborated.

“We need money to avoid default in international market,” he emphasised.

The Utility Stores Corporation plans to provide Rs 3 billion subsidy on various items including food items as part of its Ramazan package for relief of the people specially the commonman during the Holy month.

India plans to stage ‘stress tests’ twice a year on its banks following the lead of US and European financial regulators, a report said Wednesday.

With rising overdraft to Rs. 39 billion, the Pakistan State Oil (PSO) Wednesday gave an ultimatum to power companies to clear their dues by July 31.

Special Committee of the Public Accounts Committee of National Assembly on Wednesday expressed concern over awarding of contract by National Highway Authority without rendering any tender during which the contractor was awarded Rs 651 million illegally.

Orders for big-ticket items in the United States suffered the biggest drop in almost a year in June, on weaker demand for airplanes and electronic goods.