Pakistan Money Market Review

Updated on June 09, 2001

The interbank market went though a wrenching change the past week. The State Bank of Pakistan raised the repo discount rate by 100 b.p.s. This increase in the central bank's lending rate to the commercial banks has brought it up to a new of 14.00%. Our continued comments on a hike in interest rates, as one of the steps needed to protect the Pak rupee, is the apparent reason for this decision by the financial pundits. This decision came exactly after a period of eight months i.e. SBP raised the rate from 12.00% to 13.00% on 5th October 2000. Furthermore we would like to mention that during this time period the cut-off levels on the three different maturity Treasury Bills have also moved upwards by approximately 50-75 b.p.s and another upward revision is assured in the coming auction.

The liquidty crunch continued to be felt in the short term market with banks approaching the State Bank for respite. The discounting figure ranged from a low of Rs 4 billion to as high as Rs. 17 billion. However, the new discount rate was applicable from the 7th of June and prior to that banks had been paying 13.00% p.a. for availing the facility. Overnight rates were unmoved from the maximum of 12.90% and later moved to the 13.90% mark. It was only on the last day of the week i.e. Saturday that the market did reflect some signs of ease. Overnight trades were witnessed to as low as 12.00% but not before heavy amounts were dealt at 13.90% early in the day. Rumors of some inflows on account of export refinance funds were also heard. Heavy activity was witnessed in shorter tenors of two and three weeks i.e. till the 20th of June and also till the 30th. Deals prior to and after the discount rate change were at around 11.25% and 12.25%, respectively. There was no major panic in the three and six month tenors, as was witnessed last October upon news of the discount rate change. Three and six month offers moved up approximately 75-100 b.p.s. this time but borrowers still preferred to cover themselves in either two, three and one month tenors. Heavy amounts were picked up in the one month tenor with trades between the wide band of 12.50% and 13.25% with covering mostly being witnessed from certain quarters. The OMO the past week did witness banks participating against SBP asking bids for 1, 4 and 8 weeks but all bids were rejected.

Market players are quite keen on the participation that is expected in the Pakistan Investment Bond and Treasury Bill auction scheduled for the coming week. We feel that as far as participation in the PIB auction is concerned, bidding interest may actually be corporate driven bids with participation at discount levels. However T-Bills will certainly continue to be at the center of attraction and we felt that heavy participation will definitely be the case. Furthermore we also felt that cut-off levels for the three, six and twelve month papers could be well around 11.85%, 12.20% and 12.50%, respectively.

YIELD PROFILE
FEDERAL INVESTMENT BONDS
.	THIS WEEK	1 WEEK AGO	1 YEAR AGO
I Year	12.75	12.25	08.25%
2 Year	13.25	12.50	09.00%
3 Year	13.75	12.75	09.50%
4 Year	13.75	12.90	09.75%
5 Year	14.00	13.00	10.00%
10 Year	14.50	13.50	10.50%

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AUCTIONS
BID DATE	INSTRUMENT		RESULT		SETTLEMENT
May 30	T-BILL		May 30		May 31
TARGET AMOUNT		BID AMOUNT		ACCEPTED AMOUNT
Rs.8,835 Mln		Rs.25,472 Mln		Rs.22,072 Mln

MATURITIES INSTRUMENT DATE AMOUNT T-Bill 03 June 12,000 Mln T-Bill 28 June 12,800 Mln

REPO RATES   THIS WEEK 1 WEEK AGO 1 YEAR AGO Overnight 13.25 11.00 10.95 1 Week 13.00 10.25 10.75 1 Month 13.00 10.90 10.00 3 Month 12.05 11.15 07.90 6 Month 12.35 11.40 07.80 1 Year 12.55 11.70 N.A

TREASURY BILL RATES MATURING THIS WEEK 1 WEEK AGO 1 YEAR AGO 1 Month 14.00 11.90 10.50 2 Month 12.20 11.00 09.00 3 Month 11.90 11.10 08.20 4 Month 12.00 11.25 08.10 5 Month 12.00 11.40 08.05