KARACHI, Aug 23: The banks went for a much higher discounting in the month of July than in June as the State Bank kept mopping up more than targetted liquidity from the inter-bank market. The SBP did this to dispel impression that it was likely to cut the discount rate further.

Sources close to the central bank told Dawn that the market resorted to total discounting of Rs94 billion in July up from Rs25 billion in June.

Discounting means borrowing of overnight funds at a fixed rate against treasury bills and other securities. The rate at which this borrowing is made is called repo rate or discount rate — that was last cut down to 9 per cent in mid February.

The sources said the banks that resorted to heavy discounting in July included a partly privatized bank interested in buying state-run United Bank.

The privatized bank discounted Rs9 billion worth of treasury bills and other securities. Interestingly UBL also resorted to the same amount of discounting. The sources said that Allied Bank and Emirates Bank resorted to Rs9 billion and Rs8 billion discounting respectively.

Two other state-run banks also used the discount window to make a combined overnight borrowing of less than Rs4 billion.

“The banks resorted to heavy discounting last month as the SBP mopped up more than targetted liquidity from the market,” said a foreign bank treasurer.

On July 11 the SBP had siphoned off a record Rs66 billion from the market through sale of treasury bills against the target of Rs20 billion only: The very next day the banks had to discount Rs31.5 billion worth of T-bills and other securities to meet the liquidity requirements.

The SBP was constrained to mop up this much liquidity as the banks had come up with low bid prices anticipating a cut in the discount and the State Bank wanted to signal that there was no move to slash the rate.

Senior bankers say the rejection of Rs41.9 billion bids for six-month treasury bills on Wednesday (August 21) auction also indicates that the central bank is in no mood to cut discount rate.