June 23, 2006	Friday	Jumadi-ul-Awwal 26, 1427

KARACHI, June 22: The State Bank on Thursday left huge liquidity in the banking system punishing the banks for not participating in auction of Treasury bills. This led the money rates to come down to six per cent.

The State Bank picked up only Rs14.800 billion, while the bids offered were over Rs40 billion. Leaving liquidity in the market is against the previous practices of SBP which never allowed the banking system to have surplus liquidity.

The banks received Rs56 billion as inflows but refrained from participating in the auction of T-bills held on Wednesday and only Rs14 billion were offered while the SBP picked up Rs5.4 billion.

This was a signal that banks were asking for higher return on their investments, however, the SBP responded as per the prediction of some analysts. Analysts had said that the SBP would leave enough liquidity in the market so that the rates fall sharply.“This has happened. Overnight rate plunged to 6 per cent from 8.9 per cent prevailing in the market for a long period,” said an analyst.

However, dealers said that money rates would go up in coming days as the SBP would need more liquidity to serve the government.

They also argued there were no inflows of liquidity in the near future which means that shortage of liquidity would soon emerge.