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June 11 - 17, 2001

State Bank hikes discount rate by 1%

The inevitable has happened. The State Bank has raised its repo or discount rate by one per cent to 14 per cent, effective from June 7, says an SBP circular. The central bank had to take this decision to keep the rupee from falling further. The local currency had lost about four per cent of its value against the US dollar in inter-bank market in two weeks, before making a dramatic recovery of two per cent, on Wednesday.

SBP repo or discount rate is the interest rate at which it lends money to banks for up to three days against government securities. Senior bankers said the rupee opened at 64.30 to a US dollar on Wednesday but rose to 63.00/63.10 toward normal closing of inter-bank foreign exchange market thus showing a major recovery of two per cent in a single session. In post closing transactions meant for next day the local currency gained further and was quoted as high as 62.40 to a dollar. Bankers said what enabled the rupee to recover grounds, so impressively, was heavy dollar selling in the market initiated by Citibank with other local and foreign banks following the lead.

For the past two weeks many banks had been buying more and selling less dollars anticipating further decline of the rupee. In doing so, they were naturally contracting the space allotted to them, under net open position rules, for further buying. On Wednesday several banks ran out of this space and had no option but to sell dollars thus allowing the rupee to make a quick recovery. Senior bankers said what else drove even those banks that were well within their net open position limits, was the one per cent increase in SBP repo rate. They said the increase was a clear signal from the central bank that it would not let the rupee slip further.

On Monday, SBP had sent a relatively mild signal to this effect by providing $40 million plus dollars to a state-run bank for debt servicing of a state-run refinery. But despite this move the rupee had lost 35 paisa to a dollar in inter-bank market to close at 64.20/64.25.

Rupee up 1% in inter-bank market

The rupee on Thursday gained 70 paisa or one per cent against the US dollar in inter-bank market on renewed supply of dollars, on relatively low demand. Bankers said the rupee finished at 62.30/62.40 to a dollar at the end of normal trading hours in inter-bank market up 70 paisa over the previous close of 63.00/63.10. The rupee regained more of its lost strength as local and foreign banks continued to sell dollars on renewed supply. Bankers said the pro-rupee sentiment was strong as at one time it was quoted as high as 62.10 to a dollar.

FCY cash reserves

The State Bank said on Saturday it would pay banks and non-bank financial institutions 3.06 per cent return in June on the 20 per cent special cash reserves on their foreign currency deposits.

On April 2 this year the State Bank freed up foreign currency deposits of banks placed with it allowing them to use the same in local or international markets. But it also asked them to keep 25 per cent of their total foreign currency deposits as cash reserves in foreign currency.

SBP promised that it would pay banks and NBFIs a monthly return on 20 per cent special cash reserves making it clear that the remaining five per cent being mandatory cash reserves would earn no return.

Reserves rise by $75 million

Pakistan's liquid foreign exchange reserves rose by $75 million to $2.395 billion on June 2 from $2.320 billion on May 26. The State Bank said in a statement on Thursday that the total reserves included $1.319 billion held by the central bank and $1.076 billion held by all other banks.

On May 26 SBP reserves stood at $1.256 billion whereas all other banks combined had $1.064 billion.

Saudi Pak okays Rs 955mn financing

Saudi-Pak Industrial and Agricultural Investment Company on Wednesday approved a total financing of Rs955 million to 20 companies. The financing includes Rs406 million for 11 companies in the manufacturing sector and Rs549 million for 9 companies in services , communication and financial sectors. This was in addition, equity investment of Rs105 million was approved for companies in the financial sector.

Gold falls as rupee gains strength

A three per cent appreciation in rupee value against the dollar in last two days has brought down the gold prices by Rs78 per 10 grams to Rs5,626 per 10 grams from Rs5,804 on Monday.

The price of ten tola bar or biscuit also plunged by Rs1,500 to quote at Rs66,500 as compared to Rs68,000 on Monday, bullion dealers said.