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October 25, 2003
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Saturday
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Sha’aban 28, 1424
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SBP pumps in Rs3.5bn ahead of Ramazan
By Our Staff Reporter
KARACHI, Oct 24: The State Bank on Friday pumped into banking system Rs3.5 billion to keep banks liquid ahead of Ramazan. People withdraw money from banks ahead of Ramazan to avoid deduction of Zakat on their deposits and also for Ramazan spendings. This creates a liquidity crunch for the banks for the time being and normally the SBP injects some money a couple of days before Ramazan to save banks from resorting to discounting.
The holy month of Ramazan will start from Monday or Tuesday subject to sighting of the moon.
The State Bank said it injected Rs3.5 billion through one-week reverse repo of treasury bills at 2.10 per cent at an open market operation conducted for this purpose. It said the OMO generated total offers worth Rs7.8 billion of which the SBP accepted Rs3.5 billion and rejected the rest. Reverse repo of T-bills means purchasing of T-bills from banks by SBP with the understanding that after one week the banks can repurchase these bills.
Had the SBP not injected extra money into the banking system the banks that had run short of cash because of pre-Ramazan withdrawals had to borrow money from the SBP discount window at a high rate of 7.5 per cent.
Senior bankers say pre-Ramazan withdrawals have been on the fall for some years as the government has made it easier for account holders to get their bank accounts exempted from Zakat. People can tell their banks any time that Zakat should not be deducted from their accounts. “So they do not need to withdraw money at the eleventh hour,” said a bank treasurer. But many people are still not well aware of this and they think they will have to take out money immediately before Ramazan to avoid Zakat.
“Pre-Ramazan withdrawals can now be linked more to Ramazan shopping ahead of Eid rather than to withdrawals for avoiding Zakat,” observed the banker.
Senior bankers said the injection of Rs3.5 billion into the banking system eased off overnight call rates. They said the rates fell to 1-1.5 per cent from 4-5 per cent before the OMO.
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