KARACHI, Sept 17: The State Bank on Tuesday started up to three-month dollar/rupee swaps with the banks to suck in surplus rupee liquidity from the inter-bank market.

Senior bankers said the central bank swapped $10-$15 million for rupees thereby mopping up Rs900 million to Rs1.2 billion from a highly liquid inter-bank market.

“We have started two-month and three-month swaps to expand the scope of this tool of monetary management,” said Foreign Exchange Advisor of SBP Zafar Shaikh. Talking to Dawn by telephone he said the SBP would continue to ensure that “both the rupee and foreign currency liquidity remains at desired levels.” Zafar did not name the banks that entered into dollar/rupee swaps with the SBP.

But senior bankers confirmed to Dawn that at least two large local banks were among those who swapped rupee funds for dollars for three months. No word was available on the premiums on which the swaps were made.

Earlier this month the SBP had started dollar/rupee swap only in one-month tenure with the banks with an aim to use it as an effective tool for keeping rupee/foreign currency liquidity at the targeted levels.

“As the SBP has started swaps of longer tenures it will surely give banks more room to manage their positions,” said Nasim Akbar who heads Financial Market Association that groups bankers and inter-bank brokers.

Open Market Operation: Apart from mopping up part of the rupee liquidity through dollar/rupee swap the State Bank also conducted an open market operation to suck in Rs7.1 billion through four-week repo of treasury bills. This is the second OMO in a row. On Monday also the SBP had mopped up Rs9.8 billion in four-week repo. On both days the central bank maintained the cut-off yield at 5.70 per cent.

Senior bankers said despite the combined outflow of Rs16.9 billion in two days the market still had surplus rupee liquidity of a few billion rupees. That was also evident from the fact that overnight call rates mostly ranged between 2.5-3.0 per cent on Monday and Tuesday.