Pakistan Money Market Review

Updated on Feb 26, 2001

The inter-bank market continued to remain under the influence of the liquidity crunch with rates in between 12.00% and 12.90%. It was only on Saturday that rates eased off that due to the reserve averaging of banks. The highlight of the past week was the announcement of the "Special OMO", after the Treasury Bill auction. Propping up the value of the Pak Rupee by mopping up the liquidity from the market was generally be attributed to the announcement of this Special OMO. Even after the cutoff was raised in the auction a day earlier, the OMO failed to attract any bank to place liquidity for six or eight weeks. The market experienced shortfalls throughout the week with the discount repo window being tapped for respite. A maximum of Rs. 2.96 billion of discounting was witnessed on Friday as banks had to maintain their 5.00% at the end of the week. However it was on Saturday that the overnight rate nosedived to 3.00% after initially in between 6.00% and 7.00%.

The increase in the cut-off level did cause all rates in the tenor market to jump up by about 50-75 basis points. However, with lack of participation in the OMO the one month level came off sharply. In the early parts of the week trades were witnessed at 9.25% with offers rising and touching 10.00% after the market continued to discount. However after lack of participation in the OMO, offers came and closed back at around 9.00%. Offers in the three and six month tenors were available at 11.65% and 12.25% respectively, but trades were scarce. Another reason for the six month offer to jump to around 12.00% was the presence of sudden borrowing interest at 11.75% but trades were hard to come by. The State Bank picked up Rs. 3.0 billion by accepting a single bid against the three month paper at 10.96% in the auction. Hike of interest rates coupled with banks preferring to remain liquid over the quarter end were the major reasons for lack of any major participation. The PIB prices also came under pressure after the rise cut-off yield. Trades for the valentine 10 year issue were reported at 100.10, down by about 40 basis.

The short term market may not actually remain at the current 5.00% and 6.00% levels for overnight funds as witnessed at close last week, keeping in mind the outflows that will occur at the end of the month on account of salary payments and also traditional outflows due to Eid. It should be noted that banks having experienced a rather unusual quarter end on December 31st are preferring to stay away from lending funds over the quarter end, even though it could be an excellent opportunity to lock in funds at very attractive levels either in the special OMO, the T-Bill auctions or even the secondary market. Pressures to protect the local currency has certainly caused the interest rate scenario to be modified as witnessed the past week and with banks failing to place any liquidity with the State Bank, we feel that other drastic measures of a tighter monetarily policy cannot be ruled out.

YIELD PROFILE
FEDERAL INVESTMENT BONDS
.	THIS WEEK	1 WEEK AGO	1 YEAR AGO
1 Year	12.75	12.15	08.75%
2 Year	13.00	12.80	09.25%
3 Year	13.50	13.00	09.75%
4 Year	13.50	13.00	10.00%
5 Year	13.75	13.10	10.75%
10 Year	14.00	13.25	12.75%

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AUCTIONS
BID DATE	INSTRUMENT		RESULT		SETTLEMENT
Feb 21	T-BILL		Feb 21		Feb 25
TARGET AMOUNT		BID AMOUNT		ACCEPTED AMOUNT
Rs.5,000 Bln		Rs.4,500 Bln.		Rs.3,000 Bln

MATURITIES INSTRUMENT DATE AMOUNT T-Bill 08 Feb 150 Mln T-Bill 22 Feb 1250 Mln

REPO RATES   THIS WEEK 1 WEEK AGO 1 YEAR AGO Overnight 04.50 12.90 10.95 1 Week 06.50 12.00 10.00 1 Month 09.00 10.00 07.75 3 Month 11.75 11.15 07.60 6 Month 11.75 11.25 07.40 1 Year 11.75 11.75 N. A.

TREASURY BILL RATES MATURING THIS WEEK 1 WEEK AGO 1 YEAR AGO 1 Month 10.00 11.00 08.25 2 Month 11.90 10.90 07.70 3 Month 11.75 11.15 07.55 4 Month 11.75 11.20 07.60 5 Month 11.80 11.20 07.65