KARACHI, Dec 26: The State Bank on Wednesday left much of excess liquidity in the inter-bank market to help banks finance the year-end withdrawals.

The SBP sucked in Rs9.3 billion from the market and left more than this to keep banks liquid enough at the year-end: the auction of the treasury bills through which the SBP siphoned off excess liquidity had generated Rs20 billion bids. But the SBP accepted only Rs9.7 billion bids at discounted rates to mop up Rs9.3 billion — and left the rest of the liquidity in the market.

“The purpose is to help banks finance anticipated withdrawals at the year-end,” said treasurer of a leading foreign bank.

At every year-end billions of rupees are withdrawn from banking system by large state-run companies for payment to petty contractors etc., and also by some private corporates for meeting special expenses. The amount returns to the system after a few weeks.

This time the year-end withdrawal from bank deposits may pose additional problem for the banks that have only partly overcome a serious liquidity crisis that hit them after September 11. Hence the SBP move to keep the market liquid.

While conducting the auction of the treasury bills on Wednesday the SBP further cut the maximum yield by 18 basis points to 7.98 per cent for six months and by 14bps to 8.40 per cent for one year. Since July the central bank has lowered the yield on six- month bills by 4.58 per cent on six-month T-bills and by 3.54 per cent on one-year T-bills.

Since major slashing in T-bills yield has taken place in this quarter it is bound to keep the export finance rate substantially low in January-March 2002.

In October-December 2001 export finance rate fell to 12 per cent from 13 per cent in the previous quarter. Since April this year the State Bank has been fixing the rate of export finance at 1.5 per cent higher than the weighted average yield on six- month T-bills in the preceding quarter.

The cut-off yield on treasury bills started falling in July with one per cent cut in SBP discount rate. The fall was more rapid in the months to come as the SBP made another three per cent cut in its discount rate in September-October.

Bankers said after the auction of the Rs9.7 billion T-bills on Wednesday money market remained fairly liquid with overnight call rates oscillating between 5-7 per cent against the SBP discount rate of 10 per cent. They said the market should keep the trend on Wednesday when an inflow of slightly less than Rs20 billion is expected. They said despite liquid conditions prevailing in the money market the exchange rate remained fairly stable: the rupee closed around 60.16/60.21 to a US dollar against the previous close of 60.24/60.29. The bankers said the rupee held firm as inflow of export dollars was high and imports- induced demand was low. They said the rupee even traded at 60.03 to a US dollar in the afternoon meaning that this price was meant for Wednesday (value tomorrow in banking jargon.) Some bankers said some bids were quoted even below Rs60 per dollar but no trading took place at that level.