KARACHI, May 27: The State Bank injected about Rs17.3 billion into inter-bank market on Monday to help banks fight the ongoing withdrawals from rupee deposits and to keep interest rate stable.

This brought to an end the liquidity crisis that had hit the market on May 16 and continued unabetted until Friday — forcing the banks to make an average daily overnight borrowing of Rs13 billion from the State Bank discount window during this period.

The State Bank on Monday pumped in Rs14.7 billion and Rs2.6 billion through one-week and two-week reverse repo of treasury bills respectively at an open market operation. The central bank bought one-week T-bills at 6.50 per cent and two-week bills at 6.55 per cent.

Senior bankers said the SBP supplied Rs17.3 billion into the cash-strapped money market against an outflow of Rs6.45 billion due in the shape of maturity of previously sold treasury bills. In other words the central bank made a net injection of Rs10.85 billion.

“The purpose of this injection is to ensure that the banks do not run out of cash in the wake of the ongoing withdrawals from the banking system,” said treasurer of a large local bank. Local bankers—who had said earlier that they had not seen indications of unusual withdrawals against the backdrop of a war threat from India — now admit privately that withdrawals are taking place.

Says head of a large local bank: “We have lately seen some withdrawals from rupee accounts... but it is still difficult to relate them to the tense situation at Pakistan-India borders.”

Treasurer of another large local bank linked the withdrawals from large local banks to wheat financing and to transfer of sales tax collection to the government account. He said that the ongoing withdrawals could not be termed as excessively high “but they are not very usual too.”

Top local and foreign bankers informed the SBP high-ups last week about the pace at which withdrawals were taking place and they were told that the SBP would keep the market sufficiently liquid.

Some bankers said the most immediate impact of Monday’s net injection would be that it would offset an outflow of Rs9 billion due on Wednesday through maturity of the T-bills that some banks had sold last week to the SBP to generate cash.

Senior bankers said inter-bank lending rates fell on Monday with the injection of Rs17.3 billion adding that overnight call rate that had remained pegged at 8.90-8.95 per cent until last week declined to 5-6 per cent. One-week and two-week rates also fell to 7 per cent and 6.25 per cent respectively from 8.75 and 7.75 per cent respectively.

Senior bankers said the SBP’s injection would help banks keep inter-bank lending rates stable which would ward off any pressure on the overall lending rates.

Pakistan can hardly afford an upward pressure on the banks lending rate because the country is already heading towards a less-than tragetted economic growth (3.3 per cent against 3.7 per cent) in the financial year ending in June. Higher lending rates might also eclipse next fiscal year’s growth prospects.