June 27, 2006	Tuesday	Jumadi-ul-Awwal 30, 1427

KARACHI, June 26: The State Bank on Monday mopped up Rs5.7bn from the market in a 10-day repo sale but the short-term rate remained at the undesired low level. The SBP had been keeping the overnight rate close the discount rate and for the last couple of months the rate remained above 8pc.

However, since last week the SBP had been showing less interest for sucking up the liquidity which it never allowed during the last six months.

The dealers said that the inflows were higher while the SBP was picking up liquidity slowly out from the market. The high inflows were because of maturity of earlier OMOs and SBP’s policy to keep the market liquid.

The dealers said the presence of huge liquidity which sharply dropped short-term rate, was the result of banks’ small participation in the T-bills auction held last week. They said banks wanted to put pressure on SBP for increase of interest rates but the SBP punished them for not following the prescription suggested by it.

Now the banks were facing problem as they were losing because of low return on their money. The inter-bank money rate was even higher than the discount rate because of prevailing liquidity crunch.“The problem of low short term rate will be over once the SBP decides to suck up the whole liquidity,” said a money dealer. He said that the outflows of liquidity were much below the expectations of the market.

On Monday a total of Rs13.30bn bids were offered out of which the SBP picked up only Rs5.7bn. The overnight rate remained hovering around 3.5pc. The rate was almost the same as it was in the last session.