Pakistan rupee gained esteem against US dollar but lost ground to the Euro Wednesday. Forex traders in Karachi Thursday plan to hold a short position on the US dollars with expectations that it will decline further.

Buy rate for dollars in the interbank market today were Rs. 85.00 and sell rates were Rs.85.05. In both directions Pakistan rupee was standing strong.

During the Asian trade dollar fell to its lowest in more than two months against yen as investors dumped long positions against other currencies that had built up to levels not seen in more than a year.

Investors have been picking up dollars in recent months as Greece’s credit and fiscal woes hit the euro and worries over a potential hung parliament and speculation that Britain’s asset-buying scheme could be revived knocked the pound lower.

The rupee was higher by 20 paisa against the US currency for buying and selling at 85.20 and 85.40 in open market. The dollar touched a two month low against the yen in Asia on Wednesday due to selling by Japanese exporters, falling long-term U.S. interest rates, and expectations for weak U.S. jobs data.

During Asian trading hours, the dollar fell to Y88.47 on EBS, the lowest since Y88.32 on Dec. 14. That compares with Y88.75 in New York late Tuesday.

If coming U.S. data are weaker than expected, adding to speculation that the Federal Reserve may not start raising its policy rate as soon as had been expected, U.S. yields could fall further, causing the dollar to decline more against the yen, Inoue said. He tips the dollar to trade in a range of Y83.00 to Y91.00 in the coming days.

However, Pakistan rupee lost 50 paisas againts the euro: buying and selling at 114.85 and Rs 115.35. The euro had hit a two-week high Wednesday against the dollar in a sign that Greece’s stepped-up efforts to cut its gaping budget deficit has helped calm investors fears over a possible debt crisis.

But the reprieve for the common currency may not last: There is no assurance the Greek measures will be fully implemented nor was there any word from Germany or France, the euro zone heavyweights, whether they would offer more than just verbal support to the debt-laden Greeks.

Investors are now waiting to see whether “an actual bailout will happen,” said Jessica Hoversen, fixed-income and foreign-exchange analyst at MF Global in Chicago.

Foreign direct investments in Pakistan declined by 54.6%, past seven months of the fiscal year with investments falling to only $1.18 billion, State Bank of Pakistan confirmed today.

According to State Bank Of Pakistan the FDI flow into the state during July to November period of this fiscal year fell by 54% but when combined with portfolio investment reported a decline was 25.6%.

State Bank in an email stated, “investments have fallen to $1.18 billion from $2.59 billion a year earlier. Global funds bought $290.7 million more Pakistani stocks than they sold in the seven months, compared with net sales of $355.8 million a year ago.”

In Geneva on 19 January 2009 , Global foreign direct investment (FDI) inflows were estimated to fall by 21% in 2008 to an estimated $1.4 trillion, and were estimated to further decline in 2009.

Political instability, terrorist attacks, power, gas and water shortage and weak law order control has led to falling trend in FDI. These are the major reasons due to which the foreign investors are not interested in investing their capital in Pakistan.

Pakistani firms are unable to sign agreement with foreign investors due to the prevailing abysmal law and order situation.

According to economists, “although the global economic meltdown was also a reason of slow growth in FDI, the domestic shocks were major contributors in the declining trend of FDI. November was the third consecutive month in which the country posted decline in foreign direct investment. We were expecting some increase in the FDI during the current fiscal year ahead of positive economic indicators. The ongoing war in the northern areas and suicide attacks in different cities had restricted the foreign buyers from new investment in Pakistan.”

The State Bank of Pakistan (SBP) on has said, “FDI had posted a decline of 52.2 percent during July-November period of current fiscal year. Although, some increase was registered in portfolio investment in the first five months of current fiscal year, FDI still remained on decline.”

FDI reduced to $774 million during July-November of current fiscal year in last fiscal year it was $1.62 billion, depicting a decrease of 846.7 million dollars. Portfolio investment have reached to $311.3 million in July-November of fiscal year 2010. In 2009 it was 162.9 million dollars. The government expects gross domestic product will grow 3.3 percent this fiscal year.

Current global economic recession, and falling profits have caused many companies to cut capital expenditures and reduce FDI. This economic crisis has affected every region with varying geographical impacts. This crisis originated in developed countries and their major effects on the developing world have been indirect up till now which has affected FDI flow.

The share of foreign direct investment, flowing into Pakistan, is negligible when compared to the opportunities and economic fundamentals of the country. The FDI inflow into the country is less than one per cent of its total, made globally. Since 1996, when received highest amount, FDI in Pakistan has been experiencing a declining trend.

According to UNCTAD, “all experienced sharp foreign direct investment declines, except for the Netherlands and China. The overall environment for international investment is slowly improving. As a consequence, it expects global FDI flows will rebound modestly in 2010. The economists say improving conditions will ultimately encourage companies to invest more in foreign countries this year, prompting a stronger recovery in 2011.”

To emerge as a promising nation Pakistan has to provide conductive environment for external economic flows.

Foreign direct investment (FDI) in Pakistan is a major external source to meet obligations of resource gap, human resource development and goal achievement. The FDI has played a vital role in the economic growth of Pakistan.

Due slowing remittences from overseas and weakening of rupee, Pakistan foreign exchange reserves declined to $14.48 billion in the week ending on Feb. 6 from $14.52 billion the previous week, State Bank of Pakistan official was quoted saying today.

Earlier this week State Bank had reported remittances were declining every month since October 2009 and the overseas Pakistanis sent $758.2 million in October, $742 million in November, $698.4 million in December and $667.9 million in Jan, 2010.

Reserves held by the State Bank of Pakistan fell to $10.70 billion from $10.72 billion a week earlier, while those held by commercial banks eased to $3.78 billion from $3.80 billion the previous week.

Pakistan’s foreign reserves hit a record high of $16.5 billion in October 2007 but fell steadily to $6.6 billion by November 2008, largely because of a soaring import bill.

An International Monetary Fund emergency loan package of $7.6 billion agreed in November 2008 helped avert a balance of payments crisis and shore up reserves.

The IMF increased the loan to $11.3 billion in July and the central bank received a fourth tranche of $1.2 billion on Dec. 28.

According to an article in Dollars Magazine, gap in the price of dollar between open market and the inter-bank has widened during this period and is still expanding despite the efforts made by the State Bank to control it.

The State Bank of Pakistan will monitor all foreign exchange transactions with finer granularity to curb outgoing remittances and stabilize value of the Pakistan Rupee, reports on Thursday suggest.

Foreign exchange firms in Pakistan are currently required to report transactions above $5,000 at the close of business every day. Transactions below $5,000 were not the State Bank’s radar previously. However, going forward every transaction will have to report every day.

State Bank’s circular to the exchange companies today said, “Exchange companies would report, on daily basis, all transactions, regardless of amount, made by them on account of sales and purchased over the counter, besides daily reporting of outward remittances.”

Exchange firms are also required to submit daily information about their “contract” transactions of sale and purchase with other exchange firms and authorized dealers. The central bank has also asked the exchange companies that daily statement of FYC cash sales/purchase should reach SBP the same day, latest by 7 pm, as per proper procedure described by the State Bank.

SBP has warned the exchange companies that any delay in reporting will be dealt strictly under related rules and regulations. In another move, the SBP has also imposed condition of producing CNIC and submitting a copy at the time of buying and selling of even one dollar at any exchange company, and now exchange companies would report to SBP with CNIC numbers. Sources said that SBP has taken these steps after continued deprecation of rupee against dollar in the wake of the rising smuggling of dollars to the Afghanistan.

“The smuggling is being made through Chaman and Peshawar border to Afghanistan nowadays, which has created some shortage of dollars in the domestic market”, they said. However, they said, steps taken by the central bank would result in negative impact on the currency market, and people would move to black market. Despite SBP’s actions, the rupee is being depreciated against dollar, and on Wednesday it was being traded at Rs 86.60 per dollar in the open market, they said.

A briefing session at the Association of Builders and Developers (ABAD) on “Housing Finance”, today told that to address the shortage of affordable housing units State Bank Of Pakistan (SBP) has planned a long-term finance facilitation program.

Mortgage Refinancing Company (MRC) will be established with the initial investment provided by International Finance Corporation (IFC) of the World Bank and will be controlled by SBP. 20% of the initial investment would be provided by the government.

Director Infrastructure and Housing Finance Department, Mr.Rizwan Pesnani, of State Bank of Pakistan (SBP) said , “The MRC is being set up to build up the confidence of banks and financial institutions.”

He further added that the company would be made functional during the current year as its business plan had already been finalized. He said that the authority had to take positive measures for the proper implementation of recovery ordinance, which had caused the banks to commence disbursement of long term loans for housing sector fully, due to its absurd enforcement. MRC is to facilitate the masses at maximum, he said.

Syed Farhan Fasihuddin, Manager for Housing Finance Advisory Services at IFC, said that SBP and IFC have been working since 2005 for the development of MRC, moreover, MRC would help capital market, which would be launched latest by 2011. He said that in order to bring liquidity in the sector private commercial banks need to be trained for mortgage lending.

He mentioned that mortgage to GDP ratio of Pakistan is 0.7% presently, which is needed to be enhanced. He stated that it costs about eight times of the monthly income of a common person to construct a house.

Zaigham Rizvi, Consultant World Bank on Housing Finance in South Asia, said that WB has played a vital role in creating awareness regarding housing finance in the region. He informed, that newly established South Asia Housing Finance Forum portal,will be of great help in finding unique approaches to cater to the demands of the population. He added, the House Building Finance Corporation (HBFC) disbursed only Rs 700 million in 2009 and suggested the body of Abad to set up a research unit for establishing strong contacts with urban planners.

“So aesthetic and quality housing for the low-income group is a challenge that faces the whole of South Asia including Pakistan where builders need to meet the existing shortage of 8.8 million units,” he said.

Engr. Farooq-uz-Zaman, chairman Abad, said “while our annual demand of housing is 1.5 million we are constructing only 0.6 million.”

He further said, that the population residing in cities will be 65% by 2030, so the prices of houses should be catered down for the rising demand of population.

He said, “we have to transport the connection lines from the grid stations for our projects to that area even if it is 10 km away. And all this cost in borne by us, so we ultimately have to pass this cost to the buyer.”

The State Bank of Pakistan Saturday announced a cautious monetary policy, maintaining the interest rate to the current level of 12.5 percent because of concerns about remaining inflation pressures, the fiscal slippage in the second quarter, and the availability of external financing.

Addressing a press conference State Bank of Pakistan Governor Salim Raza said inflation rate was reduced at 10.3 percent during the first quarter of current fiscal year.

SBP officials tell us the risks of inflationary pressures due to higher oil prices and electricity tariff adjustments and the high domestic financing needs of the government were the key factor guiding current policy. It is apparent that State Bank has “balanced its desire for a more forceful support of the fragile recovery with its concerns about external stability and liquidity pressures arising from the government’s large domestic financing needs,” say an official privy to the decision making process.

International economists believe that remaining inflation pressures and increased domestic financing of the public sector prevent the SBP from easing monetary policy to support growth.

Governor Salim Raza today said the inflation rate was reduced at 10.3 percent during the first quarter of current fiscal year and inflationary pressure is there due to the increase in commodity prices in international market.

State Bank projects inflation to remain 11 to 12 percent this year – substantially lower that 21 percent that country faced last year.

According to IMF, concerns about low economic activity, weak private credit demand, and lower y-o-y headline inflation point in the direction of an easing of the monetary stance. The SBP proceeded with a reduction of the policy interest rate of 50 bps in November. Staff would have given greater weight to inflation risks and preferred a more cautious stance.

The SBP discount rate was lowered from 14 percent to 13 percent in August, and to 12.5 percent in November, but real interest rates remained positive. The rate cuts were limited because of concerns about remaining inflation pressures, the fiscal slippage in the first quarter, and the availability of external financing.

Governor Salim Raza said Pakistan’s forex reserves are at $15 billion. He said, “the government will have to borrow more loan from banks on account of budget deficit.”

While the government’s domestic financing needs have risen due to shortfalls in external financing, bank credit to the private sector has declined despite cuts in the policy interest rate. At the same time, the government’s high borrowing requirements have pushed T-bill rates from just below 11½ percent in mid-July to 12¼ percent in November. Government borrowing was supplemented by the issuance of government-guaranteed Term Finance Certificates (TFCs) to regularize the debt of the electricity sector companies (circular debt). Significant liquidity injections by the State Bank of Pakistan (SBP) in August–October were made to help meet the financing needs of the public sector and the seasonally higher demand for currency, while keeping the overnight repo rate within the policy corridor.