. .

Aug 20 - 26 , 2001

SBP lowers discount rate by 1 per cent

The State Bank on Thursday cut the discount rate by another percentage point from 13 to 12 per cent to pull the economy out of the slump. Earlier on July 18 it had lowered the discount rate by one per cent to 13 per cent easing off its tight monetary policy that had come under fire from independent economists and businessmen.

They were of the opinion that a lax monetary policy was a must for reviving the economy that grew by less than 3 per cent in fiscal (July/June) 2000-01 against the target of 4.5 per cent. SBP had been following a tight monetary policy much against the international trend to defend the exchange rates after free floating the rupee on the insistence of the IMF on July 20, 2000.

The rupee fell 18.5 per cent against the US dollar in inter- bank market in fiscal 2000-01 despite all the tightening of the monetary policy. The two per cent cut in SBP discount rate is being seen by many economists as an indication that after successfully going through an economic stabilization programme under the $596 million IMF standby arrangement Pakistan is poised to move towards medium to long-term growth. "We have already achieved a degree of economic stabilization and now we are moving towards medium/long-term growth programme," said Economic Advisor to SBP Dr Mushtaq A. Khan.

"We feel that real long-term interest rates are very high," he said implying that the cut in SBP discount rate would eventually lower the real long term interest rates.

Economist Dr S. Akbar Zaidi said the rate-cut is a welcome move adding that the central bank should have done it much earlier. "Since inflation is very low and fiscal space is also available SBP has enough room for easing off its monetary policy," he said. He said the two per cent cut is not enough and SBP should further ease off its monetary policy so that private investment picks up leading the country to a path of economic growth.

PSO, Shell raise fuel oil prices

Pakistan State Oil (PSO) and Shell Pakistan Limited (SPL) on Thursday increased the prices of furnace oil by Rs318 and Rs318.55 per ton respectively. The new price of PSO's furnace oil is Rs11,281 per ton as compared to Rs10,963 per ton.

Similarly the new price of Shell's fuel oil is Rs11,327.50 per ton as against Rs11,008.95 per ton. Shell had raised the fuel oil price on August 1 to Rs11,008.95 per ton from Rs10,746.75 per ton. Officials in oil marketing companies (OMCs) attributed the increase to the rising trend in fuel oil prices in the Arabian Gulf from where this product is being procured. Besides, OMCs also buy deficit quantities from the local refineries which on August 15 raised the fuel oil prices by four per cent.

The FOB Arab Gulf price of fuel oil is now quoted at $130 per ton, an official in a local refinery said adding that Pakistan's annual import of furnace oil is approximately six million tons.

Diesel prices cut by 80 paisa

The Oil Companies Advisory Committee (OCAC) on Wednesday announced decrease in the prices of high speed diesel and motor gasoline by 80 paisa and five paisa per litre, respectively but increased the prices of other petroleum products by 0.56 per cent to 2.44 per cent at 29 designated locations (oil depots) all over the country.

The new prices will be effective from August 16, said an announcement of the OCAC. The OCAC said the price of high speed diesel (HSD) has been reduced for the third time in a row, reflecting the benefits of lower prices for cargoes imported during the preceding fortnight. The new price of HSD is Rs16.73 per litre as compared to previous rate of Rs17.53 per litre.

ADB okays $100m drought aid

Pakistan is to receive 100 million dollars in emergency aid from the Asian Development Bank (ADB) as drought aid, the Manila-based lender said. The three-year project will build small reservoirs and retention dams, improve community-managed irrigation and water supply systems, rehabilitate village roads and support critical public services for agriculture and health care, an ADB statement said.

Return on PIBs cut down

The State Bank on Thursday lowered the coupon rate for 10-year Pakistan Investment Bonds from 14 to 13 per cent and called an auction of these bonds next week with a sale target of Rs10 billion.

On Wednesday SBP had scrapped Rs28 billion worth of bids for the 10-year bonds as one commercial bank alone had offered a bid larger than the auction target of Rs10 billion apparently to corner the market. Bankers said senior SBP officials informed treasurers of seven primary dealers about the one per cent cut in the coupon rate of 10-year PIBs at a meeting held at SBP. They said Economic Advisor Dr. Mushtaq A Khan and Foreign Exchange Advisor Zafar Sheikh told them that the coupon rates of five-year and three-year PIBs had also been reduced from 13 to 12.2 per cent and from 12.5 to 11.8 per cent.

Gold prices

Gold prices on Wednesday touched all time high to Rs5,928 per 10 grams. Gold prices touched Rs5,925 per 10 grams on July 19, Rs5,898 on June 27 and Rs5,847 on June 9. Bullion dealers said that the price of ten tola bar (600 grams) also shot up to Rs69,200 as compared to Rs68,000 few days back.

Foreign investment drops

Foreign investment in Pakistan dropped down to all time low of $182 million during last fiscal from $543.4 million a year earlier in 1999-2000 mainly because of the heavy withdrawal of portfolio investment. Stock brokers report of withdrawal of $140.4 million or more than Rs8 billion at an average rate of Rs60 a dollar during 2000-01 plunging the stocks to go down below 1,300 points.