Pakistan Money Market Review

Updated on May 05, 2001

The interbank money market remained depressed in the early parts of the week as the market experienced excess liquidity due to the OMO maturities in the system. However, it was on the 2nd of May that the market turned around with rates crossing into the double digit band. The news emerging from the State Bank that banks have been asked to pay back the export refinance proceeds within three business days and the net outflow due to the T-bill auction and settlement were primarily blamed for this change in trend. Overnight rates touched a high of 12.90% on Friday with Rs. 6.225 billion of discounting being reported which fell off to Rs. 2.10 billion on Saturday. It was on Saturday that the market experienced a mixed trend with initial overnight activity at 8.00% and rates gradually rising and closing back at 12.90% In fact one week tenor rates also shot up from a low of 5.50% to be seen trading as high as 9.00%, before glancing the 10.00% level as well.

Term rates maintained a soft stance with volatility persisting as the T-Bill auction was scheduled for this week. One month rates having fallen to 9.25% turned upwards on the news relating to the export refinance proceeds. Trades were reported at 10.25% while transactions in call were also reported as high as 11.00%. The highlight of the entire week was the brisk trading that was conducted in the three month call tenor. With the premium between repo and call deals at the lowest i.e. approximately 50 basis points. borrowers covered themselves at 11.70% and later as high as 12.10%. However, it were the offers soon fell back to 11.85% with more amounts trading at this level. The market conditions caused banks to participate in the T-Bill auction at levels lower than the previous cut-offs. This sentiment was very much expected, and also forecasted by us in the last weekly, was primarily due to the existing liquidity in the market. The interesting part of this auction was that bids that were received for the one year paper. A total amount of Rs. 16.40 billion being bid out of which SBP accepted Rs. 15.40 billion at 11.99% by maintaining the cut-off. The three month yield was lowered yet again and brought down to 11.14% while the six month rate was also unchanged at 11.54%. A total amount of Rs. 21.67 billion against a pre-auction target of Rs. 10.55 billion was mopped up from the system in the auction. The State Bank having announced the PIB auction this month has only offered to sell the three and five year papers and it would certainly not come as a surprise if the entire target of Rs. 3 billion is sold off.

Continuous news of pressure on the Pak Rupee parity, and the IMF country report keeping Pakistan still in red, a tighter monetary policy and use of indirect instruments should not be ruled out is what the lending agency reiterates. However we feel that any major interest rate hike is unlikely and the participation in this auction has reflected that the yield on the one year T-Bill now seems attractive for the market players with an upward revision in the discount rate seem remote.

YIELD PROFILE
FEDERAL INVESTMENT BONDS
.	THIS WEEK	1 WEEK AGO	1 YEAR AGO
I Year	12.25	12.25	08.25%
2 Year	12.50	12.50	08.75%
3 Year	12.75	12.75	09.50%
4 Year	12.90	12.90	09.75%
5 Year	13.00	13.00	10.25%
10 Year	13.50	13.50	11.00%

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AUCTIONS
BID DATE	INSTRUMENT		RESULT		SETTLEMENT
May 02	T-BILL		May 02		May 03
TARGET AMOUNT		BID AMOUNT		ACCEPTED AMOUNT
Rs. 10,550 Mln		Rs.27,220 Mln.		Rs.21,670 Mln

MATURITIES INSTRUMENT DATE AMOUNT T-Bill 03 May 10,550 Mln T-Bill 17 May 3,650 Mln T-Bill 31 May 8,835 Mln

REPO RATES   THIS WEEK 1 WEEK AGO 1 YEAR AGO Overnight 12.90 04.50 10.95 1 Week 11.00 05.50 09.00 1 Month 10.75 09.25 06.90 3 Month 11.00 10.95 06.90 6 Month 11.30 11.30 07.05 I year 11.65 11.65 N.A

TREASURY BILL RATES MATURING THIS WEEK 1 WEEK AGO 1 YEAR AGO 1 Month 11.75 10.25 08.25 2 Month 11.30 10.80 07.50 3 Month 11.00 10.95 07.35 4 Month 11.10 11.10 07.25 5 Month 11.30 11.20 07.25