KARACHI, April 20: The State Bank on Tuesday drained out Rs5.5 billion from the banking system for one week through repo sale of treasury bills at 1.25 per cent.
The SBP conducted an open market operation or OMO for this purpose. One-week repo of treasury bills means that the State Bank will repurchase these bills after one week thus effecting a change in the liquidity levels for one week.
Senior bankers say with the outflow of Rs5.5 billion from the system overnight call rates rose to 1.0-1.5 per cent from 0.25- 0.50 per cent. Lately the SBP has been draining out excess liquidity from the banking system to keep money supply in check as part of a broad strategy to rein in galloping inflation. CPI inflation or inflation measured by consumer price index rose 5.15 per cent year -on-year in March 2004 and 3.70 per cent in July/March 2003/04.
The State Bank says inflation in full fiscal year July/June 2003/04 may settle around 3.8-4.2 per cent primarily because the economy is set to grow 5.5-5.8 per cent against initial target of 5.3 per cent.
But the central bank seems alive to the challenge of keeping inflation rising beyond this range and has started making some upward adjustment in treasury bills rate.
A five-member IMF mission also said in Islamabad on Tuesday that there should be a slight tightening of monetary policy if inflationary pressures increased. The mission said this in its statement after conducting a two-week review of Pakistan economy under the $1.5 billion poverty reduction and growth facility.
Tuesday's OMO was the second in a row conducted within three working days: On Friday last the central bank had siphoned off Rs18.5 billion also through repo sale of T-bills for two weeks at 1.14 per cent.
Weighted average yields on three-month and one-year T-bills have moved up by 12 basis points and 10 basis points to 1.61 per cent and 2.07 per cent respectively in three instalments in the last two months. The average yield on six-month bills has also risen by 13 basis points to 1.80 per cent in last three auctions during this period.
