KARACHI: The State Bank of Pakistan (SBP) injected Rs1.08 trillion into the money market on Friday in yet another open market operation (OMO), which included around Rs382 billion for an unusual 63-day period.

The SBP injected Rs701 billion at 9.82 per cent for seven days in addition to providing Rs381.75bn at 9.85pc for 63 days through the OMO, which is a tool that the central bank uses to fine-tune interest rates in the short-term by trading government debt securities with commercial banks.

The latest OMO follows the injection of Rs1.77tr a week ago in which the SBP offered money to banks for a unique 63-day tenor for the first time in recent years.

“It can now be safely assumed that the cut-off rate in the next treasury bill auction, due on Dec 29, will significantly be lower than that in the last auction,” Ismail Iqbal Securities Head of Research Fahad Rauf said while speaking to Dawn.

Treasury bills became expensive in the secondary market after the monetary policy announcement in November. In its subsequent monetary policy statement on Dec 14, the SBP called the significant rise in secondary market yields unwarranted while increasing the policy rate by 100 basis points. But the yields stayed at the same level in the next auction of treasury bills held on Dec 15.

“The SBP then introduced the 63-day tenor to reassure the market that the central bank wasn’t going to increase the policy rate in the near term,” said Mr Rauf.

In simple words, the SBP has provided banks with total liquidity of Rs1.07tr through two 63-day OMOs held one week apart. As a result, banks have enough cash to bid for treasury bills in the Dec 29 auction at a lower rate than before. The cut-off yield for three-month treasury bills in the Dec 15 auction was 10.78pc.

“We expect the cut-off rate for the three-month paper to go down about 50 basis points to 10.25pc,” he said, adding that the drop in the six-month paper is likely to be 75-100 basis points from the preceding auction.

“We expect heavier participation in the three-month paper since more liquidity is available under the 63-day OMO,” said Mr Rauf.

Published in Dawn, December 25th, 2021

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