KARACHI, Aug 6: The State Bank on Friday failed to drain out further liquidity from the inter-bank market through an open market operation (OMO). The central bank had conducted the OMO to sell treasury bills under one-week and two-week repurchase agreements to siphon off some extra liquidity from the banking system.

But the banks did not show any interest in it and the OMO attracted only Rs1.45 billion bids - Rs250 million in one-week and Rs1.2 billion in two weeks. Bankers said this forced the central bank to scrap the OMO. On Thursday the SBP had drained out Rs54.7 billion from the system to keep the rupee from further losing the ground.

The Thursday's move was also aimed at keeping the money market tight to stabilize the local currency. The rupee on Friday lost two paisa to close at 58.88 a US dollar in the inter-bank market, overall it has lost 46 paisa or 0.8 per cent of its value against the dollar during the current week.

The bankers said though the rupee finally shed two paisa against the dollar on Friday, it remained range-bound between Rs58.85 to Rs58.90 a dollar throughout the day unlike that of Thursday's when it had shown wild fluctuations.

Banks avoided participating in the OMO fearing that if the SBP drained out enough liquidity interest rates would shoot up and they would be forced to borrow money at higher cost to meet their day to day requirements. Bankers estimated that the market had Rs10-15 billion excess liquidity at the end of the day.