Pakistan Money Market Review

Updated on Sep 25, 2000

The interbank market was feverishly gripped by the news of the change in the repo discount rate. An increase of 100 basis points was initiated, whereby all commercial banks would now be able to cover themselves from the SBP at 12.00%. This was the second change in the discount raw this year, however the earlier actually being a reduction of 200 bps after the induction of a low interest rate policy by the MoF in January. The initial impact on the short term market was negligible as the system remained flooded with liquidity and the overnight range was well within 1.00% and 2.00%. In fact even the surprising move of the SBP to accept the entire amount in the auction, the market rose marginally to 5.00% but fell back to 1.00% at the end of the day. The market only rose to the double digit mark on Saturday with trades witnessed in between a wide band of 7.50% and 10.50% as banks did not have the luxury of marinating reserves at easy levels, as done earlier in the previous reporting week. The medium to long term market which had been trading at the lowest levels, seen earlier in July, took a complete turn after the upward revision in the discount rate, coupled with the hike in T-Bill yields. The State Bank against the target amount of only Rs.1.408 billion picked up the entire amount bid, causing the yields to rise by 157, 152 and 127 bps for the 3, 6 and 12 month papers, respectively. The total amount worked out to be 12.25 billion. The new cut-offs now stand at 8.51 %, 8.99% and 9.28% for the three papers. The one month quote which had already been affected due to the excess liquidity in the market initially remained at levels between 6.25% and 7.00% with nominal activity being witnessed. It was only after the acceptance in the auction that levels rose significantly with offers rising to around 8.50% and amounts changing hands at 7.75% and 8.00% as well in the 1 month tenor. Three month rates rose sharply as rates clearly reflected a long awaited adjustment. Three and four month offers moved up to 8.75% with bids close to 8.50%. It was only the four month tenor that saw banks taking some interest with activity at 8.75%.

The six month tenor remained without any significant activity. However borrowing interest was evident towards the end of the week with bids crossing and touching 9.25% but offers after initially at 9.30% rose to 9.50%. The call market has also continued to be driven into double digit levels with activity witnessed in the four month tenor at comparatively firm levels of 10.00%. However activity in other tenors was limited as relatively high offers failed to attract any major borrowing interest. It appears that banks opted to pick up 4 month call in order to cover their year end positions in an interest rate scenario which seems far from stable, for the time being.

The acceptance of the entire bid amount may certainly has given a clear signal that rates had definitely bottomed out a few weeks ago and this is the upward surge that erudite fund managers. Continuous depreciation of the Pak. rupee coupled with assumed guidelines from the IMF have been singled out as the reasons for this sudden change in the interest rates on GoP's debt instruments. The change in rates by such magnitude may not be witnessed in the days to come, but the question will still lingers on whether rates are to remain at these levels or another upward shift could be on the cards?

YIELD PROFILE
FEDERAL INVESTMENT BONDS
.	THIS WEEK	1 WEEK AGO	1 YEAR AGO
1 Year	09.75	08.50	10.40%
2 Year	10.90	08.90	12.25%
3 Year	11.00	09.40	12.75%
4 Year	11.25	09.80	13.00%
5 Year	11.50	10.25	13.25%
10 Year	12.00	10.50	14.00%

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AUCTIONS
BID DATE	INSTRUMENT		RESULT		SETTLEMENT
Sep 20	T-BILL		Sep 20		Sep 21
TARGET AMOUNT		BID AMOUNT		ACCEPTED AMOUNT
Rs.1.408 Bln.		Rs.12.250 Bln.		Rs.12.250 Bln.

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MATURITIES INSTRUMENT DATE AMOUNT T-Bill 07 Sep 6,650 Mln T-Bill 21 Sep 1,108 Mln T-Bill 27 Sep 2,000 Mln

. REPO RATES   THIS WEEK 1 WEEK AGO 1 YEAR AGO Overnight 09.00 03.50 00.50 1 Week 08.15 04.75 02.50 1 Month 08.75 06.15 07.75 3 Month 08.80 07.15 08.60 6 Month 09.45 07.40 09.80 1 Year 09.75 08.25 N. A.

. TREASURY BILL RATES MATURING THIS WEEK 1 WEEK AGO 1 YEAR AGO 1 Month 09.75 07.15 08.75 2 Month 09.15 07.20 08.50 3 Month 09.25 07.30 08.75 4 Month 09.40 07.35 09.50 5 Month 09.50 07.40 09.60