Money market welcomes budget

Tuesday June 16, 2009

KARACHI: The currency market on Monday welcomed the new budget as the rupee depicted firm trend against both the dollar and the euro, dealers said. The rupee gained 10 paisa in relation to dollar on the interbank market for buying and selling at 80.95 and 81.00, they said.

Explaining the impact of new measures of the 2009-10 budget on money circulation, they said that withholding tax on commercial imports has been raised to 4 percent from 2 percent. This factor may be a hurdle in achieving the government's claim of bringing down inflation rate and the interest rate to single digit.

It was announced in the budget speech that inflation decreased from 25 percent to 14 percent and present interest rate is 14 percent. The State Bank of Pakistan (SBP) cut its discount rate on 20 April, 2009, the key policy rate by 100 basis points to 14 percent for the rest of the fiscal year ending on June 30, On that occasion, the State Bank of Pakistan Governor Salim Raza had said that inflation was expected to come down to 8 percent by next year.

In the first Asian trade, the dollar rose broadly as investors took profits on other major currencies, which had climbed to multi-month highs on hopes for a recovery in the global economy.

Some traders said a cautious tone from policy makers who gathered at a Group of Eight finance ministers meeting on the weekend helped temper recent optimism about the economy, encouraging bets in riskier assets to be cut further. Commodity currencies, including the Canadian and Australian dollars, also fell after sharp gains this week in tandem with a drop in oil prices, and as G8 finance ministers prepared to meet in Italy.


(BRecorder)