KARACHI, Nov 5: Banks on Friday ran short of cash towards the close of the business and as a result of Rs885 million discounting or overnight borrowing from the State Bank took place.

As usual the borrowings were made against the government securities at a high rate of 7.5 per cent. But bankers said the market was fairly liquid before noon having a surplus of a few billions of rupees with overnight call rates less than one per cent.

They said some banks had to average out their cash reserves and some others witnessed withdrawals from deposits related to Eid-purchases. That created a temporary shortage of cash in the banking system towards the end of the business hours at 12:00 noon and overnight call rates shot up to 5 per cent.

Senior bankers said though pre-Eid withdrawals continue from the banking system the liquidity shortage may not deepen because there was enough surplus money with the banks.

"Banks are still surplus if you ignore the reserves averaging factor," said treasurer of a local bank meaning that the Friday's shortage of cash was caused more because of averaging than real outflows.

Banks are supposed to keep five per cent of their total deposits as cash reserves with the central bank but they are allowed to let it fall to four per cent on any working day except Friday. This results in substantial outflow of funds on or before Friday.

Bankers said withdrawal of bank deposits for pre-Eid spending would rise substantially from Monday that would mark the beginning of the last week of Ramazan. If the withdrawals rise too fast and the liquidity levels plummet to the levels unacceptable for the market, the central bank would possibly inject extra money. But if the liquidity shortage remains manageable with banks resorting to only nominal amounts of discounting, the SBP may not have to do this.