China assures to stand by all weather ally Pakistan: PTI

Islamabad, Oct 26 (PTI) Pakistan has been assured by it's all weather ally China that it will stand by it under all circumstances and strengthen their strategic partnership.The assurance to this effect was re-conveyed by the Chinese leaders to Prime Minister Syed Yousuf Raza Gilani during his visit to Beijing that concluded yesterday, Pakistan Ambassador to China Masood Khan said.China said it will help safeguard Pakistan's sovereignty and territorial integrity, while maintaining existing strong bonds of friendship.It was both symbolic and substantial in nature that helped to reinforce strong commitment of the two countries to push forward their decades' old relationship, as strong time-tested traditional allies in the region, the envoy said commenting on Premier Gilani's just concluded visit to Beijing for Asia Europe meet.Gilani during his interactions with the Chinese Premier Wen jiabao received strong indications that China will continue to help Pakistan to meet new challenges, in the wake of terrorism and financial crisis.China said it support's Pakistan's stand on counter-terrorism, normalisation of its relations with India and role as a front-line state to wipe out menace of terrorism, the Ambassador said, according to the official APP news agency.

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Bond spreads hit record high: bworldonline

HONG KONG — Asian bond spreads widened to record levels yesterday as fears about a balance of payments crisis in Pakistan and Argentina’s takeover of its private pension system rocked confidence in broader emerging markets.

Fears about Asian companies also deepened after S&P and Moody’s downgraded ratings on Chinese conglomerate CITIC Pacific , which this week revealed a potential $2 billion loss on unauthorized currency trades.

"There’s a scare going on in emerging markets overall. Yesterday there were jitters about Pakistan, and right now, adding to the pressure is the news from Argentina," said a Manila-based bond trader.

The iTRAXX investment-grade index widened by by about 40 basis points (bps) to 380.

The equivalent high-yield index jumped some 100 bps to as high as 1,200.

Both marked new records levels, a Hong Kong-based trader said.

The steep widening comes amid concerns about the deteriorating health of emerging markets. Pakistan is feared to be in critical condition as the central bank holds barely enough foreign currency to cover six weeks of imports and was expected to seek IMF help.

Shaukat Tarin, economic adviser to the prime minister of Pakistan, told Dawn News on Tuesday that the country required up to $15 billion of support from foreign lenders to avert a crisis.

Also on Tuesday, news that Argentina will take over its $30 billion private pension system in order to guarantee payments to retirees sent the country’s stocks and bonds tumbling.

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IMF offers $6bn package: Dawn

By Anwar Iqbal
WASHINGTON, Oct 21: The United States has repeated its offer to help rescue Pakistan from the current financial crisis as diplomatic sources in Washington say the International Monetary Fund has agreed to provide $6 billion to the country to boost up its ailing economy.

�It�s hard for me to speculate,� said State Department�s deputy spokesman Robert Wood when asked if the IMF had agreed to offer a rescue package to Pakistan. But �we obviously will try to see what we can do to help Pakistan get through its financial crisis�.

Pakistan had �no choice but to seek help from the IMF,� said another State Department official. The official, who was not identified, was quoted in the US media as saying that Pakistani officials knew it would not be a popular decision in Pakistan but they had to go to the IMF.

�It won�t be popular with the public and it sends a lot of negative signals about Pakistan�s financial situation, its creditworthiness. But it�s a decision the Pakistanis are going to have to make,� he said.

The country�s inflation is running at around 25 per cent, and its foreign currency reserves are rapidly depleting, forcing the government to seek emergency cash advance from friendly countries and international financial institutions.

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MCB Plans Takeovers as Crisis Pushes Pakistan's Banks to Merge: Bloomberg

By Naween A. Mangi

Oct. 21 (Bloomberg) -- MCB Bank Ltd., Pakistan's biggest by market value, plans to acquire domestic rivals as the nation's deepest economic crisis in a decade and tighter central bank rules push more lenders to consolidate.

``We have excess capital and we want to deploy it in assets that make sense for us,'' Chief Executive Officer Atif Bajwa said in an interview in Karachi yesterday. He didn't say which banks he was evaluating. ``The advantage of looking to get something now is that asset prices are low.''

Central Bank Governor Shamshad Akhtar last month increased banks' capital requirements almost fourfold within five years to spur mergers and reduce risk. Bajwa will need to grapple with Asia's highest borrowing costs and a faltering economy that forced Pakistan to seek a $10 billion bailout to avoid default.

``There's going to be a domestic scenario of acquisitions and mergers in which MCB will be a prominent player,'' said Saad Bin Ahmed, head of research at Karachi-based Capital One Equities Ltd., who rates MCB's stock ``hold.'' ``MCB is part of a group which is financially very strong.''

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Pakistan’s banking system remains unhurt by financial market turmoil: SBP Governor: APP

KARACHI, Oct 21 (APP): Banking system of Pakistan has escaped the major ravaging effects of the recent financial market turmoil emerging from the US and engulfing the developed European economies. This was stated by Governor, State Bank of Pakistan (SBP), Dr. Shamshad Akhtar while speaking at the Asian Banker Dialogue on “The Banks We Like : and the Impact of the Global Financial Crisis on Pakistan’s Banks” here at a hotel on Tuesday.

The SBP Chief, however observed “In my assessment, Pakistan’s economy to- date has been affected mainly by the indirect impact of global events which led to the rise in the global commodity prices.”

Pakistan is perhaps the worst hit economy by the surge in global commodity prices as it has been a predominant factor in derailing the macro-economic fundamentals, she remarked.

Citing an example to explain this situation, she said almost 80 percent of the external current account deficit in FY08 is equivalent to the oil import bill which shot up to more than dollars 11 billion in FY08 as compared to below dollars 3 billion a few years back. Similarly, a large increase in FY08 fiscal deficit is on account of delay in pass-through of the international price hike at retail level, she observed.

Dr Akhtar said the financial markets in Pakistan have not been hit by the subprime markets or the associated contagion directly as Pakistan’s banking system from July 2007 to September 2008 did not face any liquidity problems. With strong regulatory oversight, we have seen significant enhancement of capital and capital adequacy ratio supported by high provisioning requirements.

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Pakistan targets 50 bln rupees from T-bill auction: Reuters

KARACHI, Oct 20 (Reuters) - Pakistan's central bank said on Monday it would auction 50 billion rupees ($617 million) worth of three-, six-, and 12-month Treasury bills this week.

The auction will be on Wednesday, with settlement due the following day, the State Bank of Pakistan said.

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Rupee recovers 2.2pc against dollar: Dawn

KARACHI, Oct 20: The State Bank on Monday entered the exchange rate market with such strength that the rupee recovered 2.2 per cent against the dollar.

The rupee made recovery after long time as it has been falling frequently against the greenback.

Currency dealers provided different figures of dollars injected by the SBP in the market ranging from $100 million to $275 million. However, the SBP only confirmed its intervention without providing any details of the amount injected.

“The rupee surprisingly recovered from 83 to 81 against the greenback,” said a currency dealer, who believed that the SBP pumped $275 million during the trading.

However, others said the amount was not more than $100 million.

Currency dealers were surprised as to why the SBP intervened while its own reserves were falling.

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Pakistan central bank cuts cash ratio to inject liquidity: AFP

KARACHI (AFP) — Pakistan's central bank moved to inject liquidity into the country's struggling financial system on Saturday by cutting the amount of cash commercial banks must hold in reserve.

The bank lowered the cash reserve ratio two percentage points to six percent, and said it would be cut to five percent on November 15, as it sought to ease tight credit conditions that have hit economic demand around the globe.

Shamshad Akhtar, governor of the State Bank of Pakistan (SBP), said the move would inject 180 billion rupees (2.2 billion dollars) into the system and that the overall package would total 270 billion rupees.

"The State Bank will monitor the liquidity flow after the injection of massive liquidity into the banking system," she said.

"We would like judicious use of liquidity," she said, adding Pakistan's banking sector was "quite resilient and fully capable of withstanding market shocks and adverse macro economic conditions."

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Pakistan's Market Policy: Economistan.com

FREE MARKETS:Pakistani economy along with the Pakistani rupee would be better served if the floor on KSE remainson for another month or so.

NO TO FLOOR REMOVAL FROM KSE

By Saad Sarwar Muhammad

Friday, October 10, 2008

Pakistan’s main index, the Karachi Stock Market (KSE) has witnessed a dramatic fall in market capitalization during the year 2008; falling from ahigh of approx 16,000 points in April in a steep fall to 9,000 points in a span of a few months. Resultantly, the Karachi Stock Market (KSE) put a floor of 9000 points on the index to arrest the unrelenting flight of capital. The market capitalization of the KSE has decreased by about $36 billion dollars during the last year. Around the same time the total liquid foreign exchange reserves have fallen from an all time high of $16.5 billion to $8.4 billion. This dollar flight has resulted in gradual erosion in the value of rupee, which has fallen from 60.74 to a dollar in October 2007 to around 80 to a dollar in October 2008 within a span of one year.

Statistically speaking, it was found after calculation that capital movement away from the stock market had a strong correlation with the depreciation of the rupee and it was found to be around 0.6057, while capital flight from the total liquid foreign exchange reserves was found to have a very weak positive correlation of 0.0525 with the depreciation of the rupee.

Foreign investors have repeatedly asked for the KSE index to be traded free from the floor imposed at 9000 points. If such a demand is met anytime soon and the market capitalization goes down by $15 billion, it would result in the further devaluation of the rupee from its current parity of 80 to a dollar to 90 to a dollar or beyond according to our extrapolation of data.

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