KARACHI, April 24: The State Bank on Monday invited tenders for the sale of treasury bills but kept the volume of sale extremely low which forced the banks, which are still short of liquidity, to borrow from the discount window.

The SBP announced to sell T-bills worth Rs3 billion for three-month, six-month and 12-month maturity on Wednesday. Analysts said the SBP was not in a position to sell more T-bills as the money market was facing an acute shortage of liquidity.

Banks have been receiving liquidity from the SBP and last week alone a sum of Rs49 billion was injected in the market. However, no impact was witnessed in the scarcity position of the market as the overnight rate also remained at the higher side. Most of the time during the week, the overnight rate remained at 8.9 per cent, just below the discount rate.

The tight monetary policy being maintained by the SBP resulted in severe shortage of liquidity, while the central bank itself is charging just close to the discount rate when it injects liquidity to the market. The central bank on Saturday injected Rs14 billion and charged at 8.72 per cent.

The banks, which used to invest in the long-term maturity papers during the auction, borrowed Rs9.305 billion on Monday, while the overnight rate was at 8.9 per cent.

The tight monetary policy has so far succeeded in keeping the monetary growth within the target of 12.8 per cent during the current fiscal year. The current monetary growth is around 9.8 per cent.

Dealers in the money market said the SBP would continue injecting liquidity, or the banks would continue borrowing from the discount window in the coming days. They said the central bank would maintain the prevailing status of liquidity in the money market.

The analysts believe that the response to the T-bills auction would not be enthusiastic and the bids would remain at the lower side.