KARACHI: The central bank’s decision, regarding the key policy rate on Friday, may lean both ways as the anticipated rise in inflation would force the policymakers to tighten the monetary stance, while improvement in the economic indicators may provide room for relaxing the discount rate, analysts said on Thursday. They, however, are unanimous that the State Bank of Pakistan (SBP) would keep the policy rate unchanged at 12.5 percent due to the prevailing economic conditions. If the central bank kept the interest rate unchanged, it would be the fourth time in a row. The last change in the monetary policy stance was witnessed when the key rate was cut by 50 basis points to 12.5 percent in November 2009. In its last announcement in May, the bank kept the discount rate unchanged on the basis that the economy was recovering, but lacked the necessary infrastructure and sufficient macroeconomic stability to build on the momentum. “Stabilisation efforts over the last one-and-a-half-year have brought dividends in the shape of contraction in the external current account deficit, containment of excessive money growth and reduction in inflation,” the central bank said. “However, worsening power crisis, which has severely hampered the economic activity and fiscal weaknesses continue to impede sustainable recovery and comprehensive macroeconomic stability. At the same time, inflation has started increasing gradually,” it said. Experts said that the current scenario is similar to the past and the State Bank would not have room to increase or decrease the interest rate. “The rate increase would have a negative impact on the manufacturing side and discourage the private sector to grow,” said Ahsan Mehanti, Director, Arif Habib Investments. “On the other side, the SBP would be cautious about rising prices due to the advent of the holy month of Ramazan and threat of gradual increase in the international oil prices,” he said. The 12-month headline inflation rose by 11.73 percent by the end of June, which was two percent higher than the actual government estimates, but lower than the SBP prediction, which forecast the inflation to be around 12-12.50 percent during the year. “Monetary growth is suggesting that the SBP may maintain the status quo,” said Farhan Bashir Khan, research analyst at InvestCap Research. The changes in the current account would have a direct impact on M2 growth rate (through increase in net foreign assets). The impact was visible in FY10 as the net foreign assets registered an improvement of 29.4 percent year-on-year (Y-o-Y) against the decline of 22.5 percent witnessed in FY09, he said. “On the domestic front, the situation worsened to some extent. The government borrowing for the budgetary support increased by 19.9 percent Y-o-Y during FY10, while crowding out of the private credit became further prominent as the share of credit to the private sector diminished to 59 percent of the total net domestic assets (NDA) against 63 percent in FY09,” he said. Higher domestic financing envisioned in the Budget FY11 should continue to divert chunk of the incremental money supply towards the government. This would rule out the possibility of a rate cut. “However, we also cannot subscribe to a rate increase as it would severely hurt improving trend of the private credit, without achieving its critical objective of curtailing inflation,” the analyst said. In the last country report on Pakistan released in June, the International Monetary Fund (IMF) suggested the central bank that the monetary policy should be geared at restoring the trend towards price stability. “Inflation must not become entrenched at the current levels as it will increase poverty, impede economic recovery and harm long-term growth prospects,” the IMF said. “The SBP should raise the policy rate promptly if inflation pressures do not abate as expected,” it said. In the last four monetary policy decisions, the SBP tried to balance price stability with the need to support a nascent recovery. After reducing discount rate in November 2009, the central bank kept it unchanged in view of sticky core inflation, uncertain fiscal outlook with greater domestic financing needs to compensate for external financing shortfalls and expected inflationary pressure from higher energy and food price. In the following announcement in March, it also kept the discount rate unchanged, trying to strike a balance between the imperative of reducing inflation, ensuring financial stability and supporting the economic recovery. Historically, the policy rates started picking up due to fragile economic conditions in FY07 as the SBP increased the discount rate from 10 percent to 13 percent in July-December 2008. The economic deterioration forced the central bank to further increase it by 200 basis points to 15 percent in an interim announcement in November 2008. It was the month, when the country approached the IMF for an emergency assistance due to adverse security developments, large exogenous price shocks, including oil and food, global financial turmoil and policy inaction during the political transition to the new government. The GDP growth slowed down to 5.8 percent in FY08 and inflation growth hit a record high of 25 percent. The IMF approved $7.6 billion for economic recovery, which was augmented to $11.3 billion in August 2009.

SINGAPORE: Oil prices tumbled in Asian trade Friday on profit-taking ahead of a key report expected to show that the US rebound from recession is losing pace. New York''s main contract, light sweet crude for September delivery, was down 20 cents to 78.16 dollars a barrel following gains in US trade overnight. London''s Brent North Sea crude for September declined seven cents to 77.52 dollars. Analysts said investors were waiting for the US Commerce Department to give its first estimates of second quarter growth later Friday, with many expecting the data to show further weakening amid high unemployment. "Unfortunately, the latest data suggest that the recovery lost a lot of momentum towards the end of the second quarter," said Capital Economics economist Paul Ashworth. "With the boost from inventory rebuilding and the fiscal stimulus now fading and the housing market in a double-dip, it looks like GDP growth will actually slow in the second half." The United States is the world''s biggest economy and a major energy user, and its comsumption patterns are a major influence on the oil market.

ISLAMABAD: Oil and Gas Regulatory Authority on Thursday increased prices of Compressed Natural Gas(CNG) from Rs 1.70 to 1.73 per kilogram with effective from July 30. According to OGRA sources, in Kyber-Pakhtunkhwa and Balochistan and Potohar region the gas prices were increased by Rs 1.70 from Rs 55.30 per kg to Rs 57.3 per kg. While in Punjab, Sindh excluding Potohar region CNG prices were jacked up by Rs 1.73 from Rs 53.63 per kg to Rs 55.33 per kg.

KARACHI: Pakistani stocks ended flat on Thursday in thin trading as investors awaited the announcement of the August and September monetary policy, due to be unveiled on Friday, dealers said. The KSE''s benchmark 100-share index, fell 0.09 percent, or 9.01 points, to end at 10,427.28 points. Volume was 63.35 million shares, compared with 93.86 million shares traded on Wednesday. "Most investors are cautious right now ahead of the monetary policy," said Ahfaz Mustafa, managing director at Ismail Iqbal Securities Ltd. In the currency market, the rupee ended weaker at 85.63/68 to the dollar, compared with Wednesday''s close of 85.55/62 amid higher demand for dollar for import payments. The rupee fell to a record closing low of 85.75/80 this month amid high dollar demand from importers as well as debt repayments. In the money market, overnight rates rose to 12.40 percent, compared with Wednesday''s close of 11.50 percent. Dealers said there were inflows worth 121 billion rupees ($1.41 billion) against outflows of around 125 billion rupees ($1.46 billion).

KARACHI: Pakistan''s foreign exchange reserves fell to $16.56 billion in the week ending July 23, from $16.70 billion a week ago, the central bank said on Thursday. Reserves held by the State Bank of Pakistan (SBP) fell to $12.77 billion from $12.86 billion a week earlier, while those held by commercial banks also fell to $3.79 billion from $3.84 billion, said Syed Wasimuddin, the SBP''s chief spokesman. Pakistan''s forex reserves rose to a record high of $16.77 billion in the week ending July 2, thanks to foreign inflows worth $750 million received during the week. The previous record high was $16.45 billion in October 2007. In May, Pakistan received $1.13 billion, the fifth tranche of a $10.66 billion International Monetary Fund (IMF) loan.

SINGAPORE: Oil prices turned higher in Asian trade Thursday on bargain-hunting and helped by a fall in the dollar, but analysts said sentiment suffered from slower US energy demand and weaker stocks markets. Analysts said it was unlikely oil prices would break out of the psychological 80-dollar level in the near term as the global economic recovery still faces several challenges. In addition, oil consuming and producing nations appear comfortable with the current range of 70-80 dollars a barrel, they said. New York''s main contract, light sweet crude for September delivery, was up 20 cents at 77.19 dollars a barrel in afternoon trade. London''s Brent North Sea crude for September rose 12 cents to 76.18 dollars. Analysts said the weaker dollar spurred some buying because oil is traded in the US currency, making the commodity cheaper for holders of stronger units. The dollar lost ground in Asian trade Thursday after a warning from the US Federal Reserve that the world''s top economy was slowing in some areas, confirming the view that recovery is stalling. Asian stock markets also fell Thursday on concerns about the US economic recovery. Ken Hasegawa, energy desk manager at Newedge brokerage in Tokyo, said oil prices were likely to trade within range in the near term. "We need a very strong recovery worldwide in order to see a sharp rise in oil prices," he told media. Reports of a sharp and unexpected jump in US crude stockpiles further weighed on the oil market, which was already suffering from the effects of weaker American consumer confidence.

KARACHI: State Bank of Pakistan (SBP) collected Rs124 billion against the target of Rs8 billion by executing Open Market Operation, Geo News reported on Wednesday. The SBP issued treasury bills of 3, 6 and 12-month denominations.

SINGAPORE: Oil extended losses in Asian trade Wednesday, hovering around 77 dollars a barrel as waning consumer confidence in the United States affected investors'' appetite. New York''s main contract, light sweet crude for delivery in September, was down 11 cents at 77.39 dollars a barrel in afternoon trade. London''s Brent North Sea crude for September was flat at 76.13 dollars. "Falling consumer confidence (in the United States) and the growing likelihood of a double-dip in house prices have put a further dent in the already deteriorating outlook for consumption growth," research house Capital Economics said. "Without consumers on board, the economic recovery is looking dangerously vulnerable." The United States is the world''s biggest economy and the largest energy consuming nation. Oil prices tumbled in US trade Tuesday after a closely-watched survey showed that American consumer confidence had plunged to its worst level in five months due to concerns about unemployment amid an uncertain economic outlook. The Conference Board, a business research firm, said its consumer confidence index, which had declined sharply in June, retreated further this month. The index fell to 50.4 points from 54.3 last month and is now at its lowest level since February. "It appears that lower equity prices, signs of a slowdown in activity and fears that the jobs recovery is fading have wiped out the previous optimism," Capital Economics added.

KARACHI: Pakistan State Oil (PSO) has threatened to stop supplying fuel to public and private power companies which fail to clear their dues by the end of the month, a company official said on Tuesday. “PSO has sent ultimatums to Water and Power Development Authority, Hub Power Company and Kot Addu Power Company,” the official said requesting anonymity. “We are supplying 28,000 barrels of oil to these companies daily, but they have not paid a penny in July.” WAPDA, HUBCO and KAPCO owe Rs.45 billion, Rs.55 billion and Rs.28billion to PSO respectively. Total receivables of the state-run fuel supplier now stand at Rs.139 billion. When contacted, PSO spokesperson Mariam Shah said that the company can no longer borrow from banks to run daily operations as it has almost reached the limit of Rs.40 billion. “The company already absorbed Rs.8.5 billion in interest cost by the end of May. Now we don’t have money to open L/Cs for the import of fuel oil.” Analysts say that the cash-flow problems could limit the company’s ability to pay dividends. PSO did not pay any dividend while announcing its half-yearly and nine-month results during the fiscal year 2009-10, they said. The company has been paying salaries on time but failed to give bonuses in the past one year. It has lost at least two of its senior officials to another oil marketing company. Power generation companies delay payments to PSO on the plea that electricity distribution companies are not able to clear their dues on time. This vicious cycle of inter-corporate circular debt has held the entire energy supply line hostage for over two years, officials said.

HONG KONG: Asian stocks pulled back slightly from two-and-a-half month highs hit earlier on Tuesday after upbeat U.S. housing data, while the euro neared 2-month peaks on relief over stress tests on European banks. Financial markets are awaiting a slew of data from the United States, including consumer confidence later in the day and second-quarter Q2 gross domestic product, as well as a host of quarterly corporate earnings. European markets are seen opening largely steady after Deutsche Bank''s in-line earnings and UBS''s street-beating performance in the second quarter. The euro was just above a key resistance of 1.30 with sentiment buoyed after the stress tests. Analysts are now eyeing a 2-month high of $1.3029 hit last week as the next test. High-yielding currencies like the Australian and New Zealand dollars held near recent highs and the dollar stabilised after retreating against the yen on Monday. The pound rose to a 5-month high of $1.5530 as risk appetite improved. The MSCI index of Asia Pacific ex-Japan stocks was up 0.5 percent, led by gains in the technology and consumer durables sectors. The index, which hit its highest level since mid-May earlier in the session, is down just 2 percent in the year to date, and could return to the black this week although earnings from Asian corporate heavyweights hold the key to further gains. "What we are going to get is good earnings numbers and negative forward looking statements for Q3 and especially Q4. Things are not looking so good," said Erwin Sanft, head of China and Hong Kong Research at BNP Paribas Asia. Japan''s benchmark Nikkei ended down 0.1 percent after failing to break above a key resistance level, with support from robust earnings in Japan countered by persistent worries about a strong yen. The yen was steady around 86.95 yen to a dollar, after rising from Monday''s 87.71. Overnight, Wall Street finished higher after new home sales in June logged a surprising jump and package delivery and business services company FedEx Corp''s, an economic bellwether, upgraded its quarterly and full-year earnings forecasts. Asian corporate reporting season enters its busy phase this week amid expectations of robust results for the April-June reporting period, though the picture in the months ahead is uncertain. Japanese camera and office equipment maker Canon Inc and South Korea''s Samsung SDI Co Ltd, the world''s No.2 rechargeable battery maker, both posted strong earnings but the outlook is less than upbeat. Bucking the overall trend, Shanghai''s composite, already the worst performer in Asia this year, edged down 0.4 percent after a report the city''s banks are facing rising default risks on loans to real estate developers. The mood was already jittery after a report the previous day that almost a quarter of China''s local government debt is at risk of defaulting. Shanghai''s index is down more than 21 percent in the year to date despite a six-session rising streak which has taken it to month highs. The Aussie was trading at $0.9015 close to an 11-week peak and the kiwi hovered at $0.7339, not far from a six-month high.