Pakistan Money Market Review

Updated on June 23, 2001

The interbank market was gripped with short term rates shooting up significantly. Heavy trading in the two week tenor was witnessed at 100 basis points above the State Bank discount rate. Financial year end covering was the apparent reason behind this kind of aggressive borrowing from certain quarters in the market. However we feel that banks having placed liquidity with the State Bank (as reported in the leading business publication) were bent upon covering these investments made with the Central Bank.

The overnight market witnessed continuous volatility and rates moved between wide bands of 2.00% and 14.00%. Prior to the OMO overnight levels touched a high of 14.00% with discounting being reported to the tune of Rs. 645 million only. However, the market witnessed sizeable maturities on the 21st of June that brought rates down to as low as 2.00% on Friday. The one week tenor rate crashed to as low as 6.00% from highs of 11.00% and 12.00%. Lack of any significant interest which also brought rates down in this tenor was due to the fact that one week deals matured prior to June 30th. The covering that was evident was mostly in the two week and one month tenors with borrowers driving up rates to as high as 15.50% and 14.25% respectively tenors. This trend was reversed after the rejection of the bids in the regular OMO on Thursday. Two week trades were conducted as low as 10.75% while one month activity was also reported at 11.50%. This change in the market, apparent only after the OMO result, did somewhat change the sentiment regarding the June 30th interbank scenario. The longer tenor market having shot up, after T-Bill yields were raised and the ten year PIB sold at a discount, also eased off but not before banks covered themselves for two and three months at levels of 13.00%. The change in sentiment was not surprising, as secondary market rates have historically reflected to ease off after sudden upward movement in yields. Three month repo offers fell off about 100 bps with quotes in the band of 11.75% and 12.00% while six month funds were also available below the current six month T-Bill cut-off of 12.46%.

The interbank market does seem to have come to grips after the developments witnessed the past week. However we still feel that the banks are still in a mood to pay a certain premium for crossing the year end on June 30th even though meeting IMF targets might not be a tough job for the authorities as evident from the reports in the papers. Protecting the Pak rupee still seems to be a task which is of the utmost importance for the authorities and maintaining current T-Bill yields can very much be witnessed in the last auction of the financial year due the coming week.

YIELD PROFILE
FEDERAL INVESTMENT BONDS
.	THIS WEEK	1 WEEK AGO	1 YEAR AGO
I Year	13.00	13.00	08.25%
2 Year	13.50	13.50	09.00%
3 Year	14.00	14.00	09.50%
4 Year	14.25	14.25	09.75%
5 Year	14.50	14.50	10.00%
10 Year	15.00	15.00	10.50%

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AUCTIONS
BID DATE	INSTRUMENT		RESULT		SETTLEMENT
Jun 13	T-BILL		Jun 13		Jun 14
TARGET AMOUNT		BID AMOUNT		ACCEPTED AMOUNT
Rs.12,000 Mln		Rs.11,640 Mln		Rs.11,340 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 04.25 06.50 10.95 1 Week 06.50 06.50 10.75 1 Month 11.25 12.38 08.90 3 Month 11.90 12.13 07.65 6 Month 12.40 12.43 07.55 1 Year 12.70 12.63 N.A

TREASURY BILL RATES MATURING THIS WEEK 1 WEEK AGO 1 YEAR AGO 1 Month 12.25 14.50 13.25 2 Month 11.60 13.40 09.00 3 Month 11.90 12.40 08.25 4 Month 12.00 12.25 08.15 5 Month 12.40 12.35 07.85