December 21, 2003	Sunday	Shawwal 26, 1424

KARACHI, Dec 20: The State Bank on Saturday siphoned off Rs12 billion from the banking system through two-week repo of treasury bills at 2 per cent.

The central bank had also invited offers for reverse repo of T-bills at the two-way open market operations in which it took out Rs12 billion from the system. But it chose not to inject any liquidity and rejected all offers received for the reverse repo.

Senior bankers said the market closed short of funds due to Rs12 billion repo with overnight call rate shooting up to 7.40 per cent.

On Friday the market had closed at a liquid note with overnight call rate as low as half per cent.

Senior bankers said the central bank had to drain out Rs12 billion liquidity at the cost of leaving the system poorer in cash to keep excessive growth of money supply in check. What makes this statement more credible is that the SBP drained rupee liquidity from the system on Saturday even though the system had already seen an outflow of Rs11 billion on Thursday through maturity of an OMO.

Money supply has been on the rise — and what is more important is that it has risen primarily due to increase in net domestic assets of the banking system and not through net foreign assets.

Increase in NDA coupled with very large private sector credit offtake have increased inflationary risks. The target for consumer inflation during this fiscal year is four per cent. In the first five months it has already reached 2.62 per cent.