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 3. FINANCE  4. POLICY
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FINANCE

April 15 - 21, 2002

SBP SEEKS INTEREST RATE STABILITY

The State Bank on Thursday injected Rs6.3 billion into cash-strapped money market to keep interest rates stable. Bankers said the SBP made the injection by purchasing treasury bills under reverse repo arrangement at 6.5 per cent. The SBP had pumped in Rs700 million on Monday under the same arrangement and at the same rate.

Bankers said the injection came as a big relief to the market that had discounted by Rs2.2 billion on Wednesday. That is some banks had to borrow Rs2.2 billion from the State Bank against approved securities to square their liquidity position at the end of the day. "Had there been no injection today the market would have resorted to even more discounting," said treasurer of a big bank. He said the injection brought the overnight call rate down by 4-7.5 per cent on Thursday from 8-8.90 per cent on Wednesday.

Senior bankers said they were expecting the market to discount heavily on Thursday ahead of reserve averaging on Friday, adding that Rs6.3 billion would more or less enable the banks to average out their reserve requirements on Friday. Some of them said the market might seen a modest discounting on Friday even after this injection.

Banks are bound to keep five per cent of their deposits as cash reserves with the SBP on weekly basis but they are allowed to let the amount fall to four per cent on any given day. Since most banks keep their daily reserves at four per cent they have to raise it to five per cent on Friday the last working day for this purpose. This is called reserve averaging.

Senior bankers said that Rs6.3 billion injection reinforced earlier by the SBP signalled that it wanted stability in interest rates.

"The SBP wants to keep the inter-bank market slightly liquid to maintain the present level of T-bills rates in the next auction," said treasurer of a local bank.

NWFP TO GET WORLD BANK LOAN

The NWFP is set to get $400 million soft-term loan from the World Bank under Programmatic Structural Adjustment Credit (PSAC) facility, official sources told on Wednesday.

"The province will shortly enter into a $400 million loan agreement with the World Bank in the near future," said a senior officer of the provincial government.

UK OIL FIRM TO INVEST $8 MILLION

A British Company Nativus Resources with its joint venture RDC International will invest $8 million for oil and gas exploration in 2,344 square kilometres area of Qila Saifullah and Pishin districts in Balochistan.

Under an agreement signed between the company and the Ministry of Petroleum and Natural Resources on Thursday, the company will review the geological data in the first year and conduct recording of 2,000 gravity and magnetic stations.

In the next year, the company will carry out survey of 150 kilometre area to select drilling site for oil and gas exploration.

Nativus Resources for the first time has been involved in oil and gas exploration in Pakistan.

This company has a vast experience of oil exploration, oil production and marketing. Its partner, RDC International, has also been involved in oil exploration in Balochistan.

SBP WARNS BANKS OF CAP ON PIB HOLDING

The State Bank on Tuesday warned the banks that it will cap their holding of Pakistan Investment Bonds if they do not voluntarily reduce it.

Bankers said two senior SBP officers told treasurers of more than a dozen banks at a meeting that the banking sector was holding 60 per cent of the PIBs issued so far. They said SBP Economic Adviser Dr. Abdul Naseer and Executive Director Farhat Saeed made it clear that the banking system should not hold more than 25-30 per cent of these long-term bonds.

MONEY SUPPLY BEGINS TO FALL

The rate of growth in money supply has begun to fall removing fears of inflation going up after a lag of time. Money supply had risen by 10.67 per cent up to March 16 against the initial target of 9.54 per cent set for the full fiscal year July-June 2001-02.

Though central bankers believed that it would not push up inflation as the economy was not advancing well yet analysts feared that its inflationary impact might be felt after some time. The latest SBP statistics should remove this fear as according to it the rate of growth in money supply fell to 10.19 per cent on March 23. Sources close to SBP say the rate may decline further.

ALHAMD TEXTILE MAY BUY BACK TREASURY STOCKS

Alhamd Textile Mills Limited the textile spinning mill at Multan is possibly writing a new chapter in the country's corporate history by making the first 'buy-back' of company's own shares.

The company said in an announcement on Tuesday that it had called an extraordinary general meeting of the shareholders on April 30, when a resolution would be moved to buy-back 1.631 million shares at a price of Rs21 per share. The buy-back is proposed to be made through an open tender to be published in leading newspapers.

INTER-BANK MARKET SHORT OF LIQUIDITY

The inter-bank money market braved a serious liquidity crisis this week as the State Bank started returning to the banks some foreign currency deposits.

Bankers said more than Rs25 billion discounting took place in the week ending on April 6 as traditionally liquid major banks stopped lending into the market. They said the liquidity dried up as the SBP started returning to banks from $318 million foreign currency deposits that they had attracted as incremental deposits in the $11 billion foreign currency deposits frozen on May 28, 1998.

BANKS TOLD TO START LOANING

The State Bank has asked heads of the banks to ensure disbursement of agricultural loans to needy farmers and flour millers for construction of wheat godowns and silos.