Banks borrow Rs950m from State Bank: KIBOR moves up
By Mohiuddin Aazim
KARACHI, Aug 19: Three banks combined borrowed Rs950 million from the State Bank on Thursday as the banking system ran short of cash due to a higher-than-targeted sale of treasury bills by the SBP on Wednesday.
Bankers told Dawn that three banks, including a big privatized bank, resorted to a combined discounting of Rs950 million - the first one of this fiscal year. This means that the banks borrowed this much amount from the central bank for up to three working days by pledging treasury bills at 7.50 per cent.
The SBP discount rate has remained unchanged at 7.50 per cent since November 2002 and is no longer regarded as the anchor of the monetary policy. The central bank has been using T-bill yields to signal shifts in its monetary policy.
But the discount rate still serves as a penalty rate for the banks that run short of liquidity and have to borrow money from the central bank to meet their daily requirements. Banks do this only when they cannot borrow at lower rates from the inter-bank market.
That exactly was the case on Thursday when overnight call rate or the rate at which banks lend money to each other for one day shot up to 7.50 per cent. Till Wednesday call rates ranged between 1.25 and 1.50 per cent.
But as the SBP siphoned off Rs47.7 billion from the inter-bank market, higher than the target of Rs35 billion through sale of six-month treasuries, it created a temporary liquidity crunch. Senior bankers say the liquidity shortage may start easing off next week with expected large inflows of funds through maturity of previously sold T-bills.
KIBOR MOVES UP: Karachi inter-bank offered rate or KIBOR also inched up as the banking system experienced liquidity shortage. Bankers said one-week and two-week KIBOR shot up to 5.13 and 3.76 per cent, respectively, on Thursday from 2.02 and 1.81 per cent on Wednesday.
One-month and three-month KIBOR also rose to 2.84 and 2.82 per cent from 2.02 and 2.65 per cent. Six-month and one- year KIBOR inched up to 3.31 and 4.02 per cent from 3.26 and 3.98 per cent, respectively.
The fact that one-week and two-week KIBOR showed a much higher increase than those of longer tenures shows that the banking system is anticipating that the current liquidity shortage would be short-lived.
RUPEE: The rupee gained four paisa to close at 58.78 a US dollar on Thursday, up from 58.82 on Wednesday. Bankers said the rupee gained on low demand for dollars from importers. "There was not much demand in the market and trading remained dull," said a dealer at a foreign bank.
The bankers said the rupee remained firm also because of a tight money market. Since the start of this fiscal year on July 1, the local unit has lost 66 paisa or 1.1 per cent of value against the dollar - falling to 58.78 on August 19 from 58.12 at the end of June 2004.
