1.64 percent drop in banks' mark-up rate in four months

KARACHI (December 23 2002) : The average interest rate Pakistan's banks charge on loans to companies and consumers fell by 1.64 percentage points in the four months up to October 31 to revive growth.

The average rate fell to 11.48 percent, from 13.12 percent, in the year ended June 30, 2002, the State Bank of Pakistan, the central bank, said in a statement posted on its Web site.

The central bank cut its key lending rate, the rate it charges on loans to commercial banks, by 5 percentage points to 9 percent in the year ended June 30, 2002.

The reductions were needed to boost the economy damaged by the war in Afghanistan, drought and border tensions with India.

Commercial banks followed suit, making it cheaper for companies and consumers to borrow money to invest and spend.

The state-controlled banks cut the rate by 1.31 percentage point to 12.28 percent, private banks by 1.68-percentage point to 12.75 percent and foreign banks 2.31 percentage point to 9.34 percent.

The State Bank cut the discount rate, or the lending rate to commercial banks, to 7.5 percent, a record low from 9 percent last month, the first cut in the rate since Jan 23.

''Banks will further cut the lending rate, help industry to reduce their borrowing cost and go for expansion,'' an analyst said.

Since the rate cut, the yield on 10-year bond fell by 3.65 percent to 5.65 percent and on 5-year bond by 2.85 percent to 5.05 percent, while cut-off yield on six-month treasury bills declined to 4.45 percent from 6.37 percent.

Pakistan expects the economy to grow by 4.5 percent in the year started July 1, 2002, as Europe and the US buy more overseas goods as compared with 3.6 percent a year ago.

Since March 1997, when the average loan rate stood at 17.14 percent, borrowing costs have fallen by about 1 percentage point a year.

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