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Apr 02 - 08, 2001

T-bill rates shoot up

The State Bank on Thursday had to enhance the yield on two-week and four-week treasury bills by 1.25 and 1.75 per cent to siphon off Rs 6.5 billion excess liquidity from inter-bank market.

Bankers said what led them to demand higher yields was recent tightening of monetary policy by the State Bank. SBP last week raised yields on six month treasury bills by 65 basis points: it also enhanced the yield on three-month and one-year bills by 32 and 47 bps.

In its open market operation on Thursday, the State Bank sold Rs 150 million T-bills for two weeks and Rs 6.35bn T-bills for four weeks at 10.5 and 11.5 per cent respectively: On March 1 it had kept the cut-off yield at 9.25 per cent for two weeks and at 9.75 per cent for four weeks.

By doing so the central bank did confirm its stance on monetary policy. And it also mopped up the bulk of about Rs 7.5bn inflow in an already liquid market to avoid any unfavourable impact on exchange rates as well as to meet an IMF target.

Senior bankers said the OMO raised total bids worth Rs 12.2bn of which SBP accepted bids worth Rs 6.5bn only and scrapped the rest. They said the central bank rejected all bids for one week repo as the yield demanded by banks was much higher than the previous cut-off of 9 per cent.

They said banks demanded higher yield for one week repo of T- bills in the wake of uncertainty about liquidity at the quarter- end. They did so in the light of their experience at the end of previous quarter. At end-December some measures taken by SBP to suck in excess liquidity for meeting a key IMF target had landed most banks in a severe liquidity crisis.

"Bankers fear of unspecified actions from SBP in next two days to contain liquidity in the market to meet its NDA target," said treasurer of a foreign bank who declined to be identified. "That was why banks asked for unusually higher yield on one week repo."

Reserves down

Pakistan's gross liquid foreign exchange reserves slipped by $35 million to $1.179 billion on March 24 from $1.214 billion on March 17, according to the latest State Bank figures released on Thursday.

The reserves also include about $540 million foreign currency deposits of banks placed with the central bank. Thus the net reserves stood at $639 million on March 24.

Senior bankers said the reserves fell in the week under review due to official and corporate debt payments amidst slower inflow of export proceeds and other inflows.

State Bank cuts return on FCY deposits

The State Bank on Wednesday cut, by 25 basis points, the rates of return it intends to pay on foreign currency deposits of banks in April.

SBP cut the return on one-month and three-month deposits from 3.75 to 3.50 per cent and from 4.0 to 3.75 per cent: it also reduced the interest on one-week deposit from 3.5 to 3.25 per cent. SBP said, the new rates of return are effective for April.

SBP had cut the rates of interest on foreign currency deposits by 50 basis points in March, in a move to slow down the pace of dollarization of bank deposits. Senior bankers said, SBP went for a second rate cut within a month to reinforce its earlier move.

The total amount of foreign currency deposits of banks placed with SBP stood at more than $570 million at the end of February. It could not be learnt immediately, if the amount had registered further increase in March. But bankers say a quarter per cent cut in the interest rates suggests these deposits must have risen.

Rupee pales again

The rupee on Wednesday hit a record low of 60.98 to a US dollar in trade in inter-bank market as a liquid rupee market conditions lured many banks to hold dollars.

Besides, a multinational engaged in pharmaceutical and consumer goods business opened a $20 million import letter of credit putting extra pressure on the rupee. Bankers said in early session, the rupee closed at 60.81/60.84 to a dollar against the previous close of 60.79/60.82 but later on it licked a new low of 60.98.

In kerb, the rupee finished at 64.02/64.07 to a dollar against the previous close of 63.97/64.02 for spot buying and selling.

ADB links soft loans

The Asian Development Bank has linked the disbursement of highly concessional loans to good governance in Pakistan and consistency in its policies.

"The ADB can consider offering of only soft loans on zero interest to Pakistan but then you have to achieve the objectives of good governance as we are concerned about poor project implementation in the country," ADB's new resident representative in Islamabad, Marshuk Ali Shah, told a news conference on Tuesday.

Habib Bank AG Zurich branch

Habib Bank AG Zurich has formally launched its branch in Canada, located in Mississauga, nearly 30km west of Toronto. The branch has started business this week under the name and title of Habib Canadian Bank.

To celebrate the opening of Habib Bank AG's subsidiary, Rahim Khanani, a Pakistani banker and management consultant, organized a dinner which was largely attended by Canadian politicians, parliamentarians, diplomats and leading businessmen.

Non-performing loans

The non-performing loans (NPLs) of the banking sector have reached to Rs300 billion, becoming another source of debt-creating contingent liability for the government.

According to official sources, these NPLs are likely to increase further as no concrete measures have been taken to address the issue. The Debt Reduction and Management Committee (DMRC) has concluded that the non-performing loans amounted to Rs282 billion by December 2000. It called for taking fresh measures to reduce the amount.