Pakistan Money Market Review

Updated on Mar 31, 2001

The interbank market geared up for the quarter end on March 31st and initially experienced the money market maintaining a soft stance with overnight levels at rock bottom levels of 1.50% and 2.00%. Excess liquidity in the market coupled with a number of banks keeping themselves long at this time of the year saw majority of the market players showing a sign of comfort. However with no news on the NDA targets being met some banks were willing to pay significant premiums for borrowing funds over the 31st of March. In fact one week trades were witnessed as high as 13.00% while later trades were also conducted in the band of 14.00% and 14.50%. With overnight rates at 2.00% this reflected the sentiment of some players in the market, who were also expecting the repo discount window to be closed.

The term market which had already been under pressure since the previous week reflected the same with one month offers in call transactions falling to as low as 10.75% during the week from highs of 12.50%. The volatility in the one month tenor was witnessed to such an extent that lenders were indifferent on the rate on repo or call transactions. Trades were also reported to have been conducted at around 10.00% on Saturday. It was this pressure that also caused three and six month offers to come off drastically with three and six month trades being reported at 10.80% and 11.25% while the 22nd March three and six month papers were also traded at similar levels. With the money market going through this unanticipated trend the State Bank also issued the directive for banks who were willing to conduct reverse repos against their rupee equivalent of FE45 deposits with SBP. There was no confirmed news on what were the amounts that were dealt in this scheme offered by the Central Bank in order to meet their NDA target but banks managed to receive T-Bills. A similar scheme was also offered at the end of the last quarter on December 31st 2000. SBP continued to mop up the liquidity from the market and the weekly OMO sucked out a total of Rs. 6.45 billion. This hardly caused any ripples as simultaneously the market also experienced a maturity of Rs. 7 billion coupled with the excess liquidity already present in the system.

The State Bank has announced the target of Rs. 3.50 billion for the T-Bill auction next week. The pre-auction target certainly does not come as a surprise keeping in mind the T-Bill maturity of a similar amount. The Letter of Intent of the GoP which describes the policies that Pakistan intends to implement against the US$133 million facility that it has received does mention that authorities would be willing to further tighten the monetary policy when needed. Use of indirect instruments cannot be ruled out and despite the decline in interest rates globally, rates on assets will be maintained or even raised if needed is what the LOI mentions specifically. However, we still feel that as far as the auction next week is concerned, banks will continue to bid aggressively with significant participation for the three and six month T-Bills below and around preview cut-off levels.

YIELD PROFILE
FEDERAL INVESTMENT BONDS
.	THIS WEEK	1 WEEK AGO	1 YEAR AGO
1 Year	11.90	11.90	08.00%
2 Year	12.40	12.40	08.75%
3 Year	12.75	12.90	09.25%
4 Year	13.00	13.00	10.00%
S Year	13.25	13.25	10.25%
10 Year	13.50	13.50	10.50%

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AUCTIONS
BID DATE	INSTRUMENT		RESULT		SETTLEMENT
Mar 21	T-BILL		Mar 21		Mar 22
TARGET AMOUNT		BID AMOUNT		ACCEPTED AMOUNT
Rs.4,000 Bln		Rs.19.430 Bln.		Rs.13.630 Bln

MATURITIES INSTRUMENT DATE AMOUNT T-Bill 08 Mar 4,833 Mln T-Bill 22 Mar 2,850 Mln

REPO RATES   THIS WEEK 1 WEEK AGO 1 YEAR AGO Overnight 10.00 06.00 01.25 1 Week 09.00 06.00 03.00 1 Month 09.50 10.90 05.00 3 Month 10.65 10.75 06.40 6 Month 11.20 11.35 06.60 1 Year 11.60 11.75 N. A.

TREASURY BILL RATES MATURING THIS WEEK 1 WEEK AGO 1 YEAR AGO 1 Month 10.50 12.00 06.25 2 Month 10.25 10.90 06.75 3 Month 10.85 10.85 06.80 4 Month 11.00 11.00 07.00 5 Month 11.20 11.35 07.10