KARACHI, Sept 15: The State Bank on Monday held an open market operation to mop up Rs16.15 billion from banks through one-week repo of treasury bills ahead of a critical auction of six-month T-bills due on Wednesday. This has again come as a strong signal that the central bank wants to improve the yield on six-month bills to keep the interest incomes of banks from falling further — and to enable them to stabilize the rates of return to depositors. The weighted average deposit rate of all banks fell to a humiliating low of 1.90 per cent at end-June this year which means the savers were getting a negative average return on their bank deposits as inflation stood at 3.3 per cent in the last fiscal year ending in June.

Senior bankers said the central bank accepted Rs16.15 billion bids for one-week repo of T-bills at 0.95 per cent. They said the SBP had did this to set the stage for improving the yield on six- month treasury bills.

Last Monday the central bank had mopped up Rs14.1 billion from the market through one-week repo ahead of a scheduled auction of three-month and one-year bills. The purpose was to stabilize the inter-bank lending rates that have crashed as an auction of three-month and one-year bills held earlier had left huge liquidity in the market.

On September 3 the State Bank had increased the cut-off yield on three-month and one-year treasury bills by 31 and 57 basis points to 1.39 and 1.99 per cent respectively. But in doing so it had to leave part of surplus liquidity in the market. Bankers said the SBP conducted one-week repo of T-bills on Monday chiefly to offset the inflow of Rs14.1 billion through the maturity of the last week’s repo.

T-BILLS AUCTION: The State Bank has set the auction target for six-month treasury bills at Rs15 billion. The central bank announced on Monday that the auction would be held on Tuesday and Wednesday and settlement would take place on Thursday. Bankers say since the auction is being held against no maturity of previously sold T-bills it shows that the SBP is quite serious in improving the yield on six-month T-bills.