Money Market Review: Interest rates to slide

KARACHI: The short-term interest rate will continue its declining trend in the banking system throughout January and February owing to the major inflows of Rs 180 billion, the money market experts said.

The average overnight money market rates remained between 0.50 percent to 4.5 percent throughout the week. The central bank will have to announce a target for the auction of six month Treasury bills next Monday. There is no maturity against this auction, but dealers said the market is liquid with an amount of Rs 15 billion to Rs 20 billion.

A money market dealer said the central bank has conducted a one-week rupee-dollar swap from different banks to increase its reserves. “There is huge liquidity in the market,” he said. In December’s auction, the central bank rejected all the bids of six-month paper, as it did not want to raise cut-off yield at a lower amount. The previous benchmark cut-off yield is 3.84 percent per annum.

“The central bank may announce a lower target to raise the cut-off yield by 25 basis points to 30 basis points in the coming auction,” said Naeemul Hassan, money market head at Invest Capital and Securities, a local brokerage house. “The figure of November’s inflation has gone up rapidly, therefore, the central bank will further tighten its monetary policy in coming weeks. The central bank also indicated a tightening of its monetary policy in its quarterly report.

January and February are crucial for the money market, as there is a maturity of Rs 180 billion, Rs 90 billion on January 20, and over Rs 90 billion in February. Market dealers said the central bank would not allow an unnecessary move in the T-bills rates at a low amount.

In the banking system, one-week lending and borrowing range remained from 2 percent to 4.5 percent, two-week at 2.50 percent to 4.25 percent, one-month between 3.50 percent to 4 percent, three-month 3.70 percent to 4.10 percent, six-month between 4.00 percent to 4.20 percent and a year borrowing and lending remained 4.40 percent to 4.60 percent. —Staff Report

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