KARACHI, Oct 6: The State Bank of Pakistan on Monday injected Rs54 billion into the banking system to save it from the extreme credit crunch and unexpected high call money rates, ranging from 32 to 40 per cent.

The first full day banking, after long Eid holidays, opened with a severe shortage of liquidity which pushed up inter-bank money rates much higher than the expectations of banks.

“The overnight rate was above 32 per cent and some deals were made at 40 per cent which showed an extreme situation in the banking system,” said the treasurer of a large Pakistani bank.

The situation could be worse had the SBP not injected huge liquidity into the system.

The SBP injected Rs53.9 billion, which eased the banking business, but rates were still higher.

Bankers said that withdrawals during Ramazan were much more than the amount injected by the SBP.

No official figure of withdrawal of liquidity is available, but shortage in the banking system suggests that it could be around Rs300 to Rs400 billion during a month.

“This huge outflow of cash is the real reason behind current shortage of liquidity,” said Shoaib Aleem, a senior banker.

Bankers were not in panic but were hopeful that withdrawals would come back to the system from other channels. The cash utilised by the general public during Ramazan changed hands.

“The cash withdrawn during Ramazan is utilised for shopping and purchasing assets which resulted in the shifting of liquidity from one hand to the other and finally it comes to banks,” said the banker.

The SBP has been maintaining a tight monetary policy for more than two years and does not allow ample liquidity in the banking system. However, as analysts say, the liquidity crunch was not because of tight monetary policy.

“The inflow of cash started pouring into the banking system and would be enough to eliminate the crunch and substantially cut call money rates in a week’s time,” said the banker.

The SBP injected liquidity into the banking system for seven days, indicating that a week would be enough to mitigate the impact of shortage caused by heavy withdrawals.The higher circulation of currency also showed that the market during Ramazan was much more liquid than the previous year.

According to the latest data issued by the State Bank, currency circulation from July 1 to Sept 20 added Rs71 billion in the system while the growth was Rs41.8 billion during the same period last year.