June 4, 2003	Wednesday	Rabi-us-Sani 3, 1424

KARACHI, June 3: The State Bank on Tuesday indicated it would not allow further fall in the interest rates by mopping up Rs15 billion from an excessively liquid inter-bank market. The central bank siphoned off the said amount from the market through an open market operation.

Senior bankers said the State Bank conducted a one-week repo of treasury bills at 1.20 per cent and drained out Rs15 billion from the inter-bank market. They said the central bank had to do this to keep the inter-bank rates from falling to further lows. They said the market was already long by Rs22 billion and another inflow of Rs4 billion further raised the level of liquidity.

“Had the SBP not conducted an OMO the inter-bank rates would have crashed,” said treasurer of a local bank. But he said that despite the outflow of Rs15 billion from the inter-bank market the overnight call rate closed below one per cent as the market still had enough liquidity.

The State Bank said it had received total bids worth Rs22.5 billion for one-week repo of T-bills, of which it accepted Rs15 billion bids and scrapped the remainder.

Sources close to the State Bank said by mopping up a big chunk of liquidity from the inter-bank market the central bank had indicated that it would not allow further fall in the interest rates.