KARACHI, June 13: The State Bank conducted open market operations (OMO) twice on Tuesday, as it rejected first and picked up liquidity second time at a lower rate. The SBP conducted the OMO to raise excess liquidity which was obvious from the bids offered by the banks but they were asking for higher return. The SBP rejected all bids totaling around Rs15.650 billion. The next OMO compelled the banks to accept whatever the rates were being offered. The SBP raised Rs11.150 billion for nine days at a rate of 8.25 per cent per annum.

Money dealers said that in the first OMO, the banks were asking for higher rates of 8.40 to 8.60 per cent that resulted in the scrapping of the whole OMO. However, the next OMO again provided a chance for the banks to invest for nine days and the SBP picked up the money at a rate lower than the three-month T-bills rate.

“Banks were asking the rate higher than the three-month T-bills rate, which was not be acceptable for the SBP,” said a dealer, adding that the three-month T-bills rate is 8.32pc.

The SBP has been following tight monetary policy not to leave excess liquidity in the banking system, which it thinks, could be inflationary. The tight monetary policy was followed throughout the outgoing fiscal year 2005-06, but inflation remained as high as eight per cent during the year.

The policy also failed to get hold on the rise in interest rates which increased by at least two per cent during the year. Lending rates have gone up very high and in the case of consumer financing, banks are charging more than 18 per cent per annum. The consumer financing is fast taking bigger share in the income of banks which have been earning record profits for the last couple of years.