Pakistan's central bank moved to inject liquidity into the country's struggling financial system on Saturday by cutting the amount of cash commercial banks must hold in reserve. The bank lowered the cash reserve ratio two percentage points to six percent, and said it would be cut to five percent on Nov. 15, as it sought to ease tight credit conditions that have hit economic demand around the globe. Shamshad Akhtar, governor of the State Bank of Pakistan (SBP), said the move would inject 180 billion rupees ($2.2 billion) into the system and that the overall package would total 270 billion rupees. “The State Bank will monitor the liquidity flow after the injection of massive liquidity into the banking system,” she said. “We would like judicious use of liquidity,” she said, adding Pakistan's banking sector was “quite resilient and fully capable of withstanding market shocks and adverse macro economic conditions.” The country's biggest stock market, the Karachi Stock Exchange, announced this week it would on Oct. 27 remove the “floor” it imposed two months ago. The bottom limit for the benchmark KSE-100 was put in place following a 40 percent fall in prices since April due to political uncertainty, terrorism and economic instability. The country is still reeling from the bombing last month of the Islamabad Marriott Hotel, one of the few remaining symbols of foreign investment. Pakistan's government has repeatedly denied that the country is at risk of defaulting on its foreign loans or suffering a balance of payments crisis. Shaukat Tareen, the new finance adviser to Prime Minister Yousuf Raza Gilani, reiterated the stance to reporters on Saturday saying there was “no danger” of a loan default. At the press conference, which followed President Asif Ali Zardari's return from a state visit to China, Tareen said a range of Chinese companies had vowed to invest $1.2 billion in Pakistan over the next year. Meanwhile, Islamabad wants to talk to the next US administration about boosting investment in border regions hit by militant violence, Chinese state media quoted Pakistani President Asif Ali Zardari as saying. The official China Daily newspaper quoted Zardari as saying Islamabad would encourage investment in the troubled regions and try to win more preferential treatment for their products in US markets. Zardari ended a four-day visit to China on Friday. “We are looking for a dialogue when the new US administration comes into being. And we are going to work firmly for the signing of a FTA (Free Trade Agreement) for these regions,” Zardari said.
