Export refinance rate cut by one percent

KARACHI (March 30 2003) : The State Bank of Pakistan has cut the interest rate it charges to finance exports by one percentage point on concerns that growth will slow down in the current fiscal year because of the war in Iraq.

The State Bank cut its refinance rate to 2.5 percent from 3.5 percent, effective April 1, according to a statement from the central bank.

The export refinance rate is linked to an average of six-month treasury bills.

The cut is the fifth in six months from 6.5 percent in November, 2002. In July, 2001, the rate was 13 percent.

The reductions came after the central bank cut its benchmark lending rate to a record low of 7.5 percent from 9 percent on Nov 16, 2002.

The latest move will cut borrowing costs for apparel makers and other exporters battling a 10 percent gain in the rupee since the Sept 11,2001, attacks on the US.

A rising currency makes exports more expensive and erodes the value of foreign currency earnings.

Under Pakistan's export financing programme, commercial banks borrow from the central bank and then lend the money to exporters to finance overseas sales, charging up to 1.5 percentage points above the central bank rate.

“In the short term, the greater risk emanates from the threat of the US-led campaign against Iraq,” the central bank said in a quarterly review of the economy, released when the Iraq war began.

Pakistan's textile exports in the eight months through February rose 20 percent to $4.44 billion from the same period a year earlier, the government said.

Exports account for more than 8 percent of Pakistan's gross domestic product.

Exports of textiles represent half of the total exports.

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