KARACHI, Feb 26: The State Bank is struggling hard to keep the inter-bank money market reasonably liquid without making another cut in the treasury bills rates.

The SBP on Tuesday conducted the second open market operation of this week and injected Rs1.7 billion into the banking system. The SBP injected Rs1.5 billion through two-week reverse repo of treasury bills at 6.25 per cent and Rs270 million through four- week reverse repo at 6.50 per cent.

On Monday the SBP had injected Rs1 billion through a two-way OMO that had simultaneously mopped up Rs5.2 billion from the system.

“We want to keep the market reasonably liquid,” said a central banker when asked by Dawn to explain the rationale for conducting two consecutive OMOs. “But we also do not want to let the T-bills rates drop further,” he remarked.

Last week the SBP signalled that the stance on monetary policy would not be eased off further.

It sent this signal by keeping the cut-offs on treasury bills unchanged and by increasing their weighted average rates at the fortnightly auction of the bills.

Senior bankers said banks had read the signal and were ready to act accordingly when the State Bank conducted the two-way OMO on Monday. That was why the OMO had generated huge offers worth Rs7.95 billion, of which the SBP accepted only Rs1 billion and scrapped the rest.

The SBP reinforced this signal by mopping up Rs5.2 billion from the system through T-bills repo for which the central bank had received Rs6.4 billion bids.

On Tuesday also the banks came up with huge offers totalling Rs7.5 billion of which the SBP accepted Rs1.7 billion and rejected the rest.

Central bankers say the decision to conduct two consecutive OMOs on Monday and Tuesday does not signal any shift in policy adding that the only purpose was to better manage liquidity in the market. The State Bank started conducting OMOs “as and when required” a couple of months ago. Earlier OMOs were held at regular intervals which refrained the central bank from making timely moves to regulate the liquidity levels in the market.

PIBs AUCTION: Bankers said the two injections made on Monday and Tuesday were aimed at keeping the market sufficiently liquid ahead of the 10-year Pakistan Investment Bonds auction due on Wednesday. This would be the first auction of 10-year PIBs after the reduction of its coupon rate from 12 to 11 per cent announced earlier this month.