Pakistan Money Market Review

Updated on Aug 18, 2001

An eventful week passed in the interbank money market since our last publication. The State Bank of Pakistan reduced the repo discount rate by 1.00% with the new level of 12.00% being enforced from the 17th of August. This change was the third such adjustment this year alone, with each of the adjustments being 1.00%. The first on the 7th of June being an increase while the second a reduction on the l9th of July. Simultaneously the authorities also reduced the coupon rates on the 3, 5 and 10 year Pakistan Investment bonds by 70, 80 and 100 b.p.s., respectively. It should be noted that the PIBs were introduced last December yielding coupons of 14.00%, 13.00% and 12.50% and the ten year paper has also been sold at a discount price of 99.80 in the auction of 16th of June.

The term repo market was trading at firmish levels on account of the PIB auction in the early parts of the week. Repo trades in the three and six month tenors were conducted at 10.50% and 10.90% while call transactions were at levels as high as 11.00% and 11.25% in the respective tenors. It was only after the changes that levels crashed with rates in the three and six month tenors fell by 125-150 b.p.s. Two, three and six month activity was witnessed as low as 9.00%, 9.40% and 9.75%, respectively. Most of the activity was reported in the two month tenor as banks took the opportunity to cover themselves over the first quarter end of the new fiscal year amid heavy lending from certain quarters of the market In the PIB auction buyers for the 10 year bond participated at a maximum price of 100.24 with the total bid amount being Rs. 28.20 billion. The auction was rejected but only an amount of Rs. 2.20 billion was later sold at 100.10 to the primary dealers. Amid all the changes that occurred, the State Bank simultaneously announced another PIB auction with a pre-auction target amount of Rs. 10 billion scheduled for the 22nd of August with the new coupons rates being enforced.

The regulatory changes have certainly come as a surprise to most of the dealers in the market. Furthermore more of a surprise has been due to the fact, that the IMF team is currently in the country to review the economy and also that the Pak. rupee has not shown any major signs of improvement, at a time when the authorities might be interested in following a pro-active monetary policy.

Federal Investment Bond
.	THIS WEEK	1 WEEK AGO	1 YEAR AGO
1 Year	11.25	11.90	08.25%
2 Year	11.60	12.40	08.50%
3 Year	12.00	12.90	09.00%
4 Year	12.25	13.00	09.15%
5 Year	12.50	13.50	09.25%
10 Year	13.25	14.00	09.75%

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AUCTIONS
BID DATE	INSTRUMENT		RESULT		SETTLEMENT
Aug 08	T-BILL		Aug 08		Aug 09
TARGET AMOUNT		BID AMOUNT		ACCEPTED AMOUNT
Rs.1,700 Mln.		Rs.23,796 Mln.		Rs.8,800 Mln.

MATURITIES INSTRUMENT DATE AMOUNT T-Bill 09 Aug. 7,352 Mln T-Bill 23 Aug. 5,652 Mln

REPO RATES   THIS WEEK 1 WEEK AGO 1 YEAR AGO Overnight 02.75 12.50 05.00 1 Week 04.63 11.38 05.60 1 Month 07.50 10.25 06.75 3 Month 09.25 10.63 07.00 6 Month 09.93 11.23 07.35 1 Year 10.68 11.50 N.A

TREASURY BILL RATES MATURING THIS WEEK 1 WEEK AGO 1 YEAR AGO 1 Month 08.50 11.25 10.00 2 Month 09.00 10.75 07.65 3 Month 09.50 10.80 07.30 4 Month 09.75 10.90 07.20 5 Month 10.15 11.00 07.40