KARACHI: After almost 80 days, the State Bank injected Rs61.5 billion into the banking system on Friday, reflecting liquidity shortage, which bankers said could climb further due to interest rate hike.

The SBP injected the liquidity for seven days at 9.11pc.

Earlier banks were not facing liquidity shortage since they were reluctant to invest in government papers due to low interest rate.

The SBP raised its policy rate to 9.5pc last month opening investment option for banks as they largely depend on government papers for interest income.

The State Bank conducted only three open market operations to inject liquidity in this fiscal year. The last one was on July 19 when it injected Rs159bn.

“The market is short and Rs145bn was discounted on Thursday. It shows that banks have started investing in government papers,” said S S Iqbal, a money market dealer.

The government raised about Rs350bn through treasury bills auction on Oct 3.

Earlier, on Sept 18, government raised Rs515bn which was much more than the maturity due on the same date.

However, the State Bank’s balance sheet shows that government borrowing from scheduled banks was still negative as it had been retiring the debt.

It reported that government borrowing from scheduled banks till Sept 27 was negative Rs191bn.

Liquidity shortage in the banking system was a persistent feature during last fiscal year, mainly because of heavy government borrowing from banks.

It borrowed record Rs960bn from banks in FY-13.

A research report reported that compared to the position at the end of June 2013, investment portfolio is down 6pc at the end of Sept 2013.

“With looming expectation of an interest rate hike, banks have stayed distant from government papers and apparently seem to have parked their additional liquidity in repo transactions.

On advances front, the industry witnessed a 1pc decline since December 2012 while deposit base expanded by 7pc during the same period,” said a research report of Shajar Capital.

The sector’s IDR (Investment to Deposit Ratio) has shrunk from 58pc in December 2012 to 54pc in September 2013 with investment portfolio stagnant around Rs3.8 trillion.