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KARACHI, Oct 8: The State Bank intervened in the money market on Wednesday with two firefighting initiatives: first, it lowered the cash reserve requirement for banks to seven per cent from nine, and second, it injected 100 million dollars to improve liquidity in the banking sector.
The moves came on a day that saw the rupee slumping to a record low against the dollar as the mounting security and economic problems scared off investors.
The rupee, which has lost more than one-fifth of its value against the dollar this year, rose to an all-time high of 80.10 rupees from Tuesday’s close of 78.65.
As soon as markets opened for the day, rumours swept it that the government was considering seizing bank lockers and freezing foreign currency accounts.
Shaukat Fayaz Ahmed Tarin, the newly-appointed adviser on finance, tried to calm the market with a statement assuring that no such proposals were under consideration.
He described the central bank’s move to inject $100 million as inadequate, underlining the difference in perception between the country’s financial managers.
“There is a liquidity crunch all over the world. But what is special in Pakistan’s case is that there is no capital inflow because of the ongoing security concerns and that is because of the war on terror,” said Muzammil Aslam, an economist at KASB Securities in Karachi.
“The liquidity situation will be monitored on a continuous basis and the change in the CRR may be reviewed accordingly,” said a State Bank statement.
APP adds: Adviser Tarin said that notions about the bankruptcy of Pakistan were baseless and the government was neither going to seal bank lockers nor freezing the foreign currency accounts.
He said the government would enhance the confidence of investors through concrete measures and alleviation of poverty would be among the topmost priorities.
He said the constant depreciation of the rupee was the result of wrong policies of the previous government which “maintained artificial parity of the dollar between Rs60 and Rs62”.
The adviser said that rumours in the market also depreciated the rupee but hoped that the situation would become normal in four to six weeks as the rupee was regaining its value. He, however, said that it seemed difficult that the rupee could regain its old value.
He said the government would devise a special strategy to alleviate poverty and increase annual growth rate by promoting agriculture and industry. Special measures would be taken to promote the agricultural sector, he added.
Mr Tarin said the new strategy would focus on increasing exports and decreasing imports by enhancing dependence on domestic products to save foreign reserves.
“We can afford decline in annual economic growth rate, but not an increase in imports,” he added.
The adviser said he would help restore the confidence of investors by assuring them that the economic reforms would continue and no basic policy changes would be made. He said not only local but also foreign investors would be taken into confidence.
