KARACHI, Dec 16: Pakistan's liquid foreign exchange reserves fell to about $11.632 billion on December 11 from $11.711 billion on December 4, data released by the State Bank show.

The reserves held by the central bank declined to $8.492 billion on December 11 from $9.056 billion on December 4, showing a huge fall of $564 million within a week. On the other hand, the forex reserves held by the banking system inched up to $2.69 billion from $2.655 billion.

Sources close to the central bank said the reserves held by the SBP declined sharply due to heavy outflows including that of $172 million on payment of principal and markup on Pakistan's Eurobonds launched in 1990s.

They said government debt payments, financing of Haj operations and import of fertilizer and wheat by state-run agencies also reduced the SBP's forex reserves. Besides, SBP's dollar selling to banks for financing oil imports also continues to take the toll on the reserves.

Since November 1, when the State Bank started selling dollars for oil imports, its forex reserves have seen a huge fall of $1.286 billion, coming down to $8.492 billion on December 4 from $9.778 billion at the end of October. Overall forex reserves have witnessed a decline of $621 million, coming down to $11.632 billion from $12.253 during this period.

But SBP's reserves have come down not only because of its dollar selling for oil imports. Its reserves have fallen for other reasons as well, some of them cited above. Pakistan booked a huge trade deficit of $1.091 billion in November 2004 that too eroded official reserves.

SBP had started selling dollars for oil imports from November 1 after the rupee had lost 5.5 per cent of its value against the dollar between July-June. This helped the rupee regain 2.7 per cent of its lost value last month.

SBP mops up Rs21.9bn: The State Bank on Thursday mopped up Rs21.9 billion from the interbank market at an open market operation or OMO conducted to offset an inflow of Rs27 billion, bankers told Dawn.

The SBP said it sold Rs18.9 billion treasury bills repurchase agreements for one week and Rs3 billion agreements for two-week at 2.47 and 2.39 per cent respectively. Bankers said there was little liquidity left in the market after the OMO but as a leading local bank reduced its cash reserves with the SBP, the amount of liquidity increased.

Banks are free to keep with the State Bank cash mandatory reserves at plus minus five per cent, but not less than four per cent, of their deposits on any working day but on Friday they are supposed to average out their weekly reserves precisely at five per cent.

Since some banks were maintaining more than five per cent reserves earlier in the week, it reduced the same on Thursday to bring them to five per cent on Friday. That was why the overnight call rate that had opened at 2.25 per cent on Thursday closed around 1 per cent, despite a huge outflow of Rs21.9 billion through OMO.