KARACHI, Oct 30: All payments of oil import bill will be met from the foreign exchange reserves while machinery and other imports will continue to be financed from the inter-bank resources , the Governor of State Bank, Dr Ishrat Hussain told a press conference on Saturday.

The main theme of Dr Ishrat Hussain's press conference on Saturday was to convey loudly that in face of negative impact of the rising oil prices, the rupee will remain stable and strong, currency speculators will not be allowed to play their games as the Central Bank is determined to keep speculators out of the market and to support all the genuine importers.

He declared that the central bank would perform its responsibility in meeting all the foreign exchange payments on oil import and explained "we want to reduce pressure on the inter bank." He disclosed that roughly $350 to 400 million are now required each month to provide for oil import bill thereby dropping broad hints that total oil import bill at the end of the year may be close to $4.5 to 5 billion.

He, however, cautioned that inflation would escalate beyond original projection of 5 per cent in the current fiscal year and could go up to 6 or seven per cent. Nonetheless, the State Bank governor assured that growth momentum led by large scale industry during 03-04 will continue in the current fiscal year. For agriculture, he said cotton and rice crops are good but a lot will depend on wheat for which the government has increased support price, arranging water and importing urea and DAP.

"No one can predict where the oil prices will come to stay," he replied to several questions. He agreed that extra-ordinary rise in oil prices had a negative impact on the balance of payment and on the inflation. "In Pakistan, the government has so far insulated general public from impact of rise in prices by taking the hit on itself," he said.

"Already, the government has absorbed Rs20 billion impact and would be difficult to continue it for longer" the Governor replied when asked if government could continue to provide relief to the general public on oil supply because of the high revenue generation from increasing import bill.

He said the speculators try to take advantage of the mismatch between the inflows and outflows of the foreign exchange but he warned "the State Bank will take measures to prevent all such speculators."

The State Bank governor warned of an economic slow down on global level because of rise in oil prices that could also affect Pakistan's exports. "You cannot expect current account surplus every year for a developing country like Pakistan," Dr Ishrat remarked while asking the journalists to wait for some more time as "we expect inflows from the floatation of $500 million Islamic Bond, World Bank, Asian Development Bank and other sources."

Notwithstanding the negative impact of rise in oil prices, the State Bank governor expressed the confidence that Pakistan's economic fundamentals are strong and "business cycle has taken a turn for better triggering an aggregate demand driven growth."

"Economic situation will remain stable despite a fall in current account," the State Bank governor made it clear and confidently declared that rupee would remain stable and strong in the inter-bank."

Giving an account of economic performance during 03-04, Dr Ishrat said there was an investment-led growth as investment increased by 22 per cent. He said the exceptional growth in investment during 03-04 is supported by several corroborative evidences such as increase in import of machinery and equipments.

He said that the consumer financing by banks has generated a lot of demand, which has triggered production. He said a prudent monetary policy to generate demand in the market is a better option than budgetary measures that lead to fiscal deficits. "If inflation starts going up we will not hesitate to fight it with rise in interest rates," he declared.

Asked to explain why the annual report gives a figure of Rs188 billion for public sector development investment in the current fiscal year when budget provides Rs202 billion he replied that it was a built-in operational shortfall which cannot be avoided. The annual report also mentions that in the last fiscal year the government could not utilize more than Rs5 billion of the allocated development fund.