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Pakistan stock market plunges to 8-month low
Published in The Saudi Gazette on 24 - 05 - 2008

Pakistan's stock market plunged to an eight-month low Friday after the central bank hiked interest rates and fueled investor anxiety over the country's mounting economic and financial problems.
The benchmark KSE 100 Index dropped 615 points, or 4.5 percent, to close at 13,011 on Friday. The index has fallen about 17 percent in the past five weeks.
Pakistan's stock market was a strong performer in recent years thanks to sizzling economic growth and a boom in service sectors such as banking and telecommunications.
But investor confidence is eroding in the face of accelerating inflation and yawning budget and trade deficits.
Investors also doubt the government's ability to tackle the problems.
Friday's slump came after the central bank lifted its main interest rate from 10.5 percent to 12 percent in an attempt to curb inflation, which hit 17 percent in April.
Atif Malik, head of research at JS Global Securities, said investors were dismayed at the size of the increase.
The State Bank of Pakistan's move “will help it arrest inflation and meet other macroeconomic targets, but it will slow down economic growth, Malik said.
“The cost of doing business will certainly increase.”
The central bank also ordered commercial banks to pay a minimum interest rate of 5 percent on savings accounts - a requirement that Malik said would hurt the banks' profitability.
The extent of Pakistan's economic woes has emerged since a civilian government replaced an administration loyal to former army strongman President Pervez Musharraf.
Leaders of the new coalition accuse their predecessors of neglecting and concealing problems such as the ballooning cost of imported oil and falling foreign investment.
The government is preparing a budget that analysts say must include unpopular spending cuts and tax hikes in order to contain a rising budget deficit.
Analysts are urging the government not to allow a looming conflict between the ruling parties and Musharraf to distract them from the task of shoring up the economy.
The second-largest coalition party, led by former Prime Minister Nawaz Sharif, has pulled its ministers - including the finance minister - from the Cabinet in protest at the failure to restore judges purged by Musharraf last year.


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