KARACHI, Dec 9: The State Bank did exactly what the bankers were anticipating: it conducted an open market operation or OMO on Thursday to suck in Rs27.45 billion from the inter bank market , after having scrapped a regular treasury bills auction on Wednesday.

The State Bank said it mopped up Rs26.45 billion through one-week repo of T-bills at 2.45 per cent and Rs1 billion through two-week repo at 2.40 per cent. Banks had come up with Rs27.3 billion demand for one-week and Rs1.2 billion demand for two-week repo.

On Wednesday, the central bank had scrapped a six-month T-bills auction to avoid a sharp increase in the yield. The auction had generated Rs8.115 billion demand for the bills against the pre-fixed sale target of Rs30 billion.

Banks had demanded cut-off yields at 4.2-4.62 per cent, against the previous average yield of 3.74 per cent. The SBP was unwilling to raise the yield to these levels.

Senior bankers said that the central bank conducted the OMO on Thursday to offset the impact of Rs31 billion inflow in the market through maturity of previously sold treasury bills. But they said that the market still had some surplus funds adding that call rates did not improve much and closed at 1.5 per cent.

They said that the surplus might reduce on Friday when banks would make up for any shortfall in their weekly average liquid reserves of 5 per cent of their total deposits. They are free to keep the reserve at 4 per cent at any day but raise it to 5 per cent on Friday.

An outflow of more than Rs22 billion is also expected on Saturday when a local bank would transfer the earnings of a public sector company to the government. That would wipe out the market liquidity.