A shortage of funds in interbank money market on Tuesday forced the banks to borrow heavily from the central bank (State Bank of Pakistan) discount window for the second consecutive day. Dealers said that with no cash inflows scheduled this week and fund demand steady, more discounting was expected.
Overnight call rates ended at 9.9 percent, unchanged from Monday and just below the discount rate of 10.0 percent at which banks borrowed 28.30 billion rupees from the State Bank of Pakistan's three-day repo facility .
Banks had borrowed 28.70 billion rupees from the facility on Monday. "Fund demand remains higher traditionally in Ramazan due to higher retail outflows and, with no inflows, banks were forced to go for discounting," said a local bank dealer. The fasting month of Ramazan began last week. It ends with the Eid-ul-Fitr festival.
Dealers said that there were some tax payment outflows from the market as well, which added to the pressure. "We're likely to see more discounting in coming days," said a dealer.
In the currency market, the rupee closed at 60.62/64 to the dollar, down from the previous close of 60.54/56. Dealers said there was some dollar buying by the central bank during the day, which resulted in higher demand for the US currency, which pulled the rupee slightly lower. However, dealers said the rupee was likely to hold steady in the near-term amid healthy dollar inflows.
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