KARACHI, Oct 27: Banks had to borrow Rs8 billion overnight funds from the State Bank's discount window on Wednesday as an outflow of Rs14 billion from the banking system caused a temporary shortage of funds.

But a huge inflow of Rs85 billion is due on Thursday against which the outflow would be much smaller - Rs20.35 billion on account of the settlement of three-month and one-year treasury bills sale on Wednesday. Senior bankers said the market had been short of liquidity by a few billion rupees even before the outflow of Rs14 billion on Wednesday.

The combined impact of all this would be that the Rs85 billion inflow in the market on Thursday through maturity of previously sold T-bills would be reduced to Rs40 billion or so. "That would flood the market sending overnight call rates to less than half a per cent," said treasurer of a local bank.

Bankers say the central bank will have to conduct an open market operation to suck in excess liquidity on Thursday. "They (the SBP) cannot afford to keep the market that much liquid at a time when the rupee has been under pressure," said treasurer of another local bank.

The SBP normally keeps the inter-bank market sufficiently liquid during Ramazan to help banks finance pre-Eid withdrawals. "But that does not mean it would leave the market wallowing in Rs40 billion surplus. My feeling is the SBP would surely mop up part of the excess liquidity. Otherwise the rupee will be under increased pressure," said treasurer of a foreign bank.

The rupee on Wednesday closed unchanged at 61.10 a US dollar in the inter-bank market. It has lost more than five per cent value against the dollar since July, the first month of the new fiscal year.