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Updated on Apr 20, 2002

This week interbank market flooded with excess liquidity and overnight funds mostly traded at the lower end of the spectrum. Rates fall sharply after the T-bill auction in which SBP accepted around Rs.6.10 billion. At the start overnight rates were quoted in the band of 3.00% to 3.50% but near the end of the week activity was witnessed at the rock bottom levels and deals were struck in the range of 0.75% to 1.00%.

This week in term repo side trades in three and six months was seen at 20 to 40 basis points lower than the prevailing T-bill cut-off yields. One month repo saw a fall of around 50 bps and trades in respected tenor was witnessed as low as 5.00%. The SBP conducted regular T-bill auction during the week and participation in the auction reflected that banks were convinced that the authorities will follow the policy of stable interest rates and there will be no upward adjustment is expected in the coming days. The pre-auction target was Rs.3.00 billion against the T-bill maturity of around Rs.7.00 billion. Heavy participation of around Rs.19.50 billion was reported, SBP accepted total amount of Rs.6.10 billion in six and one year papers and rejected all the bids in three months paper. However, slightly decrease of around 4 bps in the yield on the six months paper was seen. After the T-bill auction, aggressive trading was seen in three and five months to maturity papers at 5.80% and 6.00%, buyers for nine months to maturity papers were willing to bid at 6.75% and trades were also witnessed at the same levels. Towards the end of the week sharp fall in one and two week's was seen and trades in respected tenors was executed as low as 3.25%, and 4.00%, one of the major reason for the fall was the hidden inflows which falls near the end of the week.

Due to the prevailing liquidity in the system, it is expected that SBP will conduct OMO in the coming week to stabilize the market. We expect that aggressive trading in T-bills will be seen in the coming week as there is a strong feeling that slight downward adjustment is expected in T-bill cut-off yields.