In the interbank market, tighter condition is likely to prevail as the market may face liquidity crunch due to larger outflow of funds. Pakistan Telecommunications Authority (PTA) has paid Rs 17 billion into the government account to settle its payment. Another outflow of Rs 13 billion is in the pipeline, which the NBP will be paying to the Sate Bank of Pakistan at a later date. It is the collection of money deposited by the intending Hajis who would be performing Haj.
Furthermore, Rs 15 billion taxpayers' money will be drained out from the banking system, probably by the month end.
Money market dealers said that there are large size borrowers such as HBL, MCB, ABL and UBL whereas small amount of liquidity is concentrated among foreign banks and NBP.
Majority of the money market dealers were of view that since the borrowers were averaging reserves at 4 percent to avoid borrowing at higher cost, banks will be compelled to pay maximum for the next few days to meet their weekly average reserve requirements of 5 percent and hence may see discounting during the week unless funds are injected by the central hank through Open Market Operation (OMO).
The SBP has invited tenders on Wednesday for sale of token amount of Rs 2 billion six-month treasury bills against zero maturity. Rs 4.7 billion bond maturity is due on September 22.
A country head of Financial Markets of a European bank said: "We are keenly waiting for the SBP's next move on interest rates. There is a lot pressure on rates, and bigger interest rates move will not surprise us. I still believe that there is room for one percent to 1.5 percent hike in 3- and 6-month T/bills yield, with chances for 2 percent hike in one-year T/bills yield.
To tame inflation, the central bank may not be willing to compromise on interest rates with growth. Rate hike of up to 2 percent would still not hurt the consumer business. Neither will it see borrowers shying away.
Such a move would rather be healthy for genuine consumer business market, which will also help in bringing stability."
A primary dealer said: "Thin market response to SBP's call for gradual hike of interest rate will soon start hurting, as pressure is mounting for higher return on treasury bills.
Traders are not willing to invest at lower yields. We may see a couple of bids at low levels to please the central bank, which may not reflect the real market demand. Real test will be seen in the next three-monthly and 12-monthly Treasury Bills auction, which is due in the last week of September, as genuine bidders would be looking for higher return or would place their funds in the interbank market.
The market is well aware that the central bank cannot afford to leave enough liquidity, which may further aggravate the inflationary condition."
Meanwhile, overnight lending rates closed at 6.5 percent after hitting the day's high of 7.40 percent. One-week jumped to 5.5 percent, two weeks climbed to 5 percent. Market was bidding one-month at 3.25 percent. Six-month rose to 3.10 percent.
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