Wednesday, February 4, 2009

Chapter 11 to be introduced in 2 months: The News

SBP governor hints at rate cut, calls for avoiding liquidity issues in future

Thursday, February 05, 2009
By Jawwad Rizvi

LAHORE: Governor State Bank of Pakistan Syed Salim Raza Wednesday said that Chapter 11 in the banking law would be introduced in the next two months.

This will allow borrowers to declare bankruptcy if they are unable to repay loans to the banks and lose their business. The working on this law was started some three years ago and now the central bank has almost reached the point where it could be introduced.

Syed Salim Raza expressed these views during a meeting with the leading industrialists, MPA Punjab and think tanks at the Punjab Governor House. The meeting was organised by the Governor Punjab Salman Taseer.

World over Chapter 11 bankruptcies are available to any business, whether organised as a corporation or sole proprietorship, and to individuals, although it is mostly used by corporate entities.

The SBP chief hinted a decline in mark-up rates as banks were easing out from liquidity issues and their deposits had started piling-up again. However, he did not announce any timeframe to cut the mark-up rate despite.

During the meeting hot debate was witnessed between Advisor to Finance Minister of Musharraf’s regime Dr Salman Shah and Salim Raza and director monetary policy department of SBP Dr Hamza Ali Malik as SBP chief had asked the director to reply Dr Shah quires.

Dr Shah asked the SBP chief to ponder upon the monthly figures of inflation and bailout the industry on short-term basis as being adopted world over to minimize the impact of credit crunch. Raza said that the central bank was not focusing on short term polices.

Dr Shah said that there is disinflation in the country during the last three months so the central bank should reduce the mark-up rates. He said comparing current inflation figures with past five year’s data is not suitable when the world economies are facing the credit crunch where as five years back there was excess liquidity in the system.

In his presentation to the industrialists Salim Raza justified the Monetary Policy announced last week. He said risks to Pakistan’s economy are relatively less as compared to 2008. Vulnerability of the external sector due to high prices of oil and other commodities; high cost of imports and weak prospects of foreign investment, have moderated considerably owing to improvements related to each area.

The SBP governor said progress has been made to control inflation in the last four months. The slow improvement in core inflation is due to the fact that non-fuel and non-food items, such as wages and rents and fares etc. continue rising after the supply side shocks recede.

For more on this article, please click on the following link: Chapter 11 to be introduced in 2 months: The News

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