April 19, 2006	Wednesday	Rabi-ul-Awwal 20, 1427

KARACHI, April 18: Serious liquidity crunch compelled banks to borrow from the State Bank despite huge injection of over Rs35 billion by the SBP on Tuesday.

Bankers said the outflow of liquidity was due to high export financing by the banks and that financing would remain high because of higher growth in exports.

However, some bankers are of the view that State Bank’s swaps for the dollar have come to an end that means the central bank returns the dollars to the banks and get back liquidity.

But despite huge injection of liquidity, money rates remained at the highest side showing the depth of scarcity. The SBP injected Rs35.350 billion into the market for four days at a rate of 8.7 per cent and the banks borrowed additional Rs4.2 billion at the rate of nine per cent.

There is only a narrow gap between the discount rate and the rate charged by the SBP on money that reflects central bank’s intention of maintaining a tight monetary policy to curb inflation and check interest rate hike.

Surprisingly, banks have been investing in long-term papers of the SBP despite continuous scarcity of liquidity. In the previous auction of T-bills, the banks preferred to invest Rs14 billion for one year. The SBP had injected another big chunk of Rs32 billion on Monday.

Dealers said that the overnight rate prevailed at 8.9 per cent and believed that it would continue. They said the SBP would again inject liquidity as there is no chance of any big inflows in coming days.

Analysts said the inflow of $1.4 billion against the sale of Pakistan Telecommunication Company Limited gave a sudden boost to country’s foreign exchange reserves that crossed the $12 billion mark. This may have resulted in the return of dollars to the market and outflow of liquidity. No bank has figures how much dollars were swapped by the SBP.

The shortage of liquidity has also created problems for the State Bank which is unable to offload huge quantity of treasury bills into the market. The government borrows form the SBP and the central bank gets the money from the banking system through the sale of treasury bills, but the shortage of liquidity provides a slim chance for T-bills sale.