KARACHI, Dec 23: Overnight market rates fell sharply on Friday from 8 per cent to just 2 per cent as the surplus liquidity flooded the market sinking returns on borrowing to the lowest level in the interbank.

The outflow of Rs68 billion on Thursday was not enough to tighten the market rates and, instead, the rates further fell. Analysts said the market still had a liquidity of about Rs20 billion.

The State Bank of Pakistan (SBP} mopped up Rs68 billion against the target of Rs45 billion through the auction of T-bills. However, the bids offered were more than Rs89 billion reflecting the presence of excess liquidity.

“The SBP might come up for Open Market Operation (OMO) to siphon off the excess liquidity,” said an analyst adding that the higher liquidity is prone to inflation which is against the SBP’s policy.

Banks have to maintain 5 per cent cash reserves with the SBP and Friday is the settlement day which requires higher liquidity compared to normal working days. However, the market found no shortage and rates dropped to lowest levels.