Pakistan Money Market Review

Updated on Apr 28, 2001

The interbank money market running short by amounts ranging between Rs. 2.50 billion and Rs. 4.0 billion kept short term rates at the higher end of the spectrum for most parts of the past week. Overnight activity remained restricted at the 12.90% and 13.00% level till the reporting week on Friday. However it was towards the end of the week that the market did show a sign of relief with rates actually falling off sharply in the second half on Friday. A day earlier the authorities had managed to pick up Rs. 4.90 billion against the maturity of Rs. 6.30 billion. According to some rumours the OMO maturity was much higher than the expected amount. One week trades were traded as low as 5.00% after initial activity at as high as 10.00% on Friday. Start of the new week, only Rs. 523 million of discounting on Friday and more than expected inflows, were the primary reasons for this sudden change in the market sentiment.

The term market had already started to reflect a somewhat change in outlook in the early parts of the week. Borrowers were caught on the back foot after covering at 11.00% and higher as the fall in the short term market caused offers to come off to as low as 9.00% in the one month tenor. Furthermore maturities to the tune of approximately Rs. 20 billion on account of T-Bill maturities in the first twenty days of May was also the reason for rates falling so sharply in this tenor. The most surprising activity was the call transactions in the three and six month tenors. Trades in both these tenors were reported as low as 12.25% and 11.75% with offers hovering at similar levels at end of the week on Saturday. According to market reports large deposit placements at lower levels by some corporates was the primary reason for the spread between call and repo rates to falling to such levels in the longer tenors. The three month repo tenor remained somewhat inactive due to the mismatch in the bids and offers of 10.80% and 11.00% after the change. The acceptance of Rs. 4.90 billion in the OMO for 4 weeks at an extraordinary rate of 11.25% did prove to be an excellent opportunity for the lenders. This was due to the fact that the market for this tenor turned around the very next day with offers at 9.00% and one week rates falling to as low as 5.00%.

The authorities the past week have certainly reflected that maturities will certainly not be left in the market even if it takes a higher than expected rate to pick the same, which has been in the mind of the pundits all along since the end of the last financial quarter. However with the OMO only a tool of monetary management, we feel that this in no way reflects that SBP might be willing to raise yields on its debt instruments. Term rates in the market, especially the call rates in fact actually reflect an entire opposite scenario in the making which will cause participation at levels lower than previous cut-offs in the T-Bill auction a certain possibility.

YIELD PROFILE
FEDERAL INVESTMENT BONDS
.	THIS WEEK	1 WEEK AGO	1 YEAR AGO
1 Year	12.25	12.25	08.25%
2 Year	12.50	12.50	09.25%
3 Year	12.75	12.75	10.00%
4 Year	12.90	13.00	10.25%
5 Year	13.00	13.25	10.75%
10 Year	13.50	13.50	11.25%

.

AUCTIONS
BID DATE	INSTRUMENT		RESULT		SETTLEMENT
Apr 18	T-BILL		Apr 18		Apr 19
TARGET AMOUNT		BID AMOUNT		ACCEPTED AMOUNT
Rs. 6,000 Mln		Rs.7,300 Mln.		Rs.4,900 Mln

MATURITIES INSTRUMENT DATE AMOUNT T-Bill 06 Apr 3,710 Mln T-Bill 13 Apr 500 Mln T-Bill 19 Apr 5,200 Mln

REPO RATES   THIS WEEK 1 WEEK AGO 1 YEAR AGO Overnight 04.50 12.90 10.95 1 Week 05.50 12.50 09.25 1 Month 09.25 11.00 06.70 3 Month 10.95 11.25 06.95 6 Month 11.30 11.50 07.05 1 Year 11.65 11.65 N. A.

TREASURY BILL RATES MATURING THIS WEEK 1 WEEK AGO 1 YEAR AGO 1 Month 10.25 12.10 07.50 2 Month 10.80 11.10 07.25 3 Month 10.95 11.20 07.20 4 Month 11.10 11.25 07.20 5 month 11.20 11.40 07.25