KARACHI, June 16: The State Bank on Wednesday mopped up Rs55.7 billion from a highly liquid inter-bank market for one week at an open market operation held for this purpose.

Bankers said the SBP siphoned off Rs55.7 billion through one-week repo sale of treasury bills at 1 per cent. They said the OMO had attracted a total of Rs63.5 billion bids but the SBP accepted Rs55.7bn and rejected the rest.

They said that overnight call rate that had plunged to 0.2 per cent on Tuesday with the banking system wallowing in excess liquidity shot up to three per cent after the OMO but finally closed at one per cent.

The banks that participated in the OMO in a big way included (i) National Bank (ii) Habib Bank (iii) Muslim Commercial Bank (iv) United Bank and (v) Union Bank. By draining out Rs55.7 billion excess liquidity from the system for one week the central bank has attempted to keep growth in money supply within limits.

Senior bankers say SBP may have to hold another big OMO towards the end of this month to contain growth in Net Domestic Assets or NDA if the next auction of treasury bills fails to mop up enough liquidity.

A high growth in NDA and overall money supply has pushed up consumer inflation or inflation measured by consumer price index to 4.22 per cent in eleven months to May 2004 against the target of 3.9 per cent set for full fiscal year ending in June.

In eleven months to May 2004 NDA has grown by Rs270 billion against the initial target of Rs100 billion set for full fiscal year ending in June. Sources in the SBP say the central bank would make more attempts to contain NDA but made it clear that meeting the NDA target was not obligatory on the central bank.

"These targets are always indicative and can be adjusted upwards or downwards," said a senior SBP official. An unusual growth in NDA has stemmed primarily from an all time high private sector credit off take.

Banks disbursed Rs283.5 billion credit to the private sector in eleven months to May 2004. In the comparable period of last fiscal year they had disbursed Rs131 billion.