KARACHI, Dec 9: The State Bank of Pakistan (SBP), desperate to off-load glut of treasury bills, exerted pressure on the money market by leaving the surplus liquidity in the banking system, which witnessed sharp fall in the money market rates on Friday.
The SBP raised only Rs800m out of the bids offered Rs16.550 billion through Open Market Operation (OMO), but the rates slipped below 8 per cent.
The SBP, which failed to sell off its treasury bills up to the target of Rs35 billion on last Wednesday, put pressure on the money market to come down and the market finally fell to 2 to 2.5 per cent for overnight rate.
The SBP was found stuck with a glut of Rs132 billion of treasury bills, which it failed to sell to the banks. Experts said it was the first time that the SBP set a higher T-bills target than the inflow. The scheduled inflow was Rs28 billion while the SBP set the target at Rs35 billion.
The SBP could raise only Rs19.6 billion for one year at 8.7 per cent while the bids for 3-month and 6-month were higher than the ambit of the SBP.
“The SBP wants more selling of T-bills in the next auction as the glut of Rs132bn T-bill is causing inflationary impact on the economy, which is against the tight monetary policy being following by the SBP,” said an analyst.
The government has already borrowed from SBP, which means that the money went to the economy but it was not from the banking system.
“The additional supply of money to the economy will certainly take the inflation high and would create further problem for both the SBP and the government,” said the analyst.
“The SBP appears to be stuck up,” says another analyst adding that if it raises the cut-off yield to sell higher amount of T-bills, it would add to the inflation, and If it fails to off-load the huge glut of T-bills, it will again raise inflation.” The SBP would keep pressure on money market to bring down the rates, he added.
Most of the experts believe that the market is surplus with Rs15 billion and would continue to move with it.
“Saturday is important to watch the SBP’s move. If the Bank picks up the liquidity, the money market rates floating at the bottom level, would increase,” said Salman Jafery, an analyst at Jehangir Siddiqi Company.
He said that the SBP succeeded to bring down the OMO rate to 7.9pc from over 8pc and if the liquidity persists, rates might slip further.
Experts said the surplus liquidity and lower rates would help the SBP to benefit in the next T-bills auction, at the same time, the SBP would not need to increase the cut-off yields.
Banks have been seeking higher cut-off yields but there would be no pressure if the market remains liquid and the rates float at the lower levels. Analysts expect that the SBP would return to the market with much higher target in the next auction of T-bills but do not believe that the SBP would offer even slightly higher bids.
