KARACHI, Nov 19: Banks had to borrow Rs5.789 billion from the State Bank on Friday to overcome a temporary liquidity shortage. Bankers said banks resorted to this overnight borrowing chiefly to meet the cash reserve requirement at the end of the week.
Banks borrowed the amount against government securities at the SBP's discount rate of 7.5 per cent. Bankers said the market went for discounting, as some banks need cash to maintain their cash reserves at the required 5 per cent of their deposits.
Earlier, during this week they were maintaining the cash reserves below 5 per cent but at 4 per cent or more, as permitted by the central bank. Banks are supposed to average out the cash reserves at 5 per cent by Friday.
Bankers said overnight call rate, or the rate at which banks borrow overnight funds from other banks, shot up to 7.40 per cent because of the discounting. Some bankers said the market was short of cash not only because of reserve averaging but also because banks had seen a draw down on deposits until last week, ahead of Eid-ul-Fitr that fell on November 16 but banks reopened after Eid on November 18.
Senior bankers said the liquidity shortage should ease off next week when the market would receive a huge inflow of Rs56 billion through maturity of treasury bills. Some of them said the central bank might also inject funds into the market before this inflow, due on November 25.
