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15DEC

MoneyMarketOfPakistan
PostedbybasilisktinMonetaryEconomy.Tagged:callloanmarketofpakistan,moneymarketof
pakistan,pakistan,treasurybillsofpakistan.15comments

(https://pakistaneconomy.files.wordpress.com/2009/12/elnur080800241.jpg)
Moneymarketisnotsomepresetplacelikecommoditymarketbutacollectivenamegiventoall
financialinstitutionsdealingwithshorttermcreditfinancing.Itperformsvariousfunctionslike
Divertsavingintoinvestment,bringsfinancialstabilitybytransferringcreditfromonesectorto
other,reducestherelianceonbankborrowing,easingtheimplementationofmonetarypolicy,
providingshorttermfinancetogovernments,lendingthesurplusfunds(ifany)forshortterm
etc.InPakistanprimaryparticipantsofmoneymarketaremanylikegovernmentofPakistan,
statebankofPakistan,commercial,cooperativeandsavingbanks.Letsseetherecent
developmentsincomponentsofmoneymarketofPakistan.
TreasurybillsareanObligationofgovernmentrepresentingfloatingdebttofinanceshortterm
gapbetweengovernmentreceiptsandexpendituresandareusuallyissuedwiththematuritiesof
3,6monthsand1year.Thesearesoldatdiscountandrepaidatparaftermaturityinanopen
auctionandtherateofdiscountisquotedbythebidders.Moreovertheyarenegotiable,non
interestbearingandnonredeemable.ThereturnofTBsissubjectto39%withholdingtax.In
PakistanfirstauctiontookplaceonMarch4,1991.292ndauctionofTbillwasheldon04Nov09
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treasurybillsofpakistan|PakistanEconomy'sBlog

andamountrealizedwasRs19,983.10millionwhichislessthanpreviousamountofRs20,759.08
millionwhilstweightedaverageyieldswere12.425%,12.551%and12.5517%for3,6and12
monthsresp.
TradingincreditceilingisanotherimportantelementofPakistansmoneymarket.Statebank
fixedacreditceilingforbanks.Theceilingwasfixedfor6monthsbutreviewedquarterly.The
fixationwasdirectlyrelatedtoforeigncurrencydeposits.Ifattheendofaweekabankhadsome
nonutilizedportionoftheceilingitcouldtradeitwithsomeotherinstitutionsthathadalready
exhausteditsceilingwiththeeffectfromAugust1,1992,theSBPhasabolishedcreditceilingsas
aninstrumentofcreditcontrolandreplacedthembycredit/depositratioguidelines.
Moneymarketisinfactacallloanmarket.Herebanksandfinancialinstitutionslendoutoftheir
surplusfundsandtheinstitutionsinneedoffundscanborrowfromthemarket.Callloanmarket
balanceisdeterminedbytheforcesofdemandandsupply,thusratefluctuatesalot.Durationof
theloanincallmarketisusuallyforaveryshortperiodlike1dayoraweek.Nosecurityis
generallytakenbecauseparticipantsarewellrecognizedinstitutions.Thesearerepayableon
demand.
Itinvolvessaleofsecuritieswithasimultaneouscommitmenttorepurchasethesecuritiesona
particulardateatapredeterminedpriceincludinginterest.REPOscantakedifferentformslikeif
acommercialbankholdsmoresecuritiesthanwanteditwillsellthesesecuritiestoaDFIonREPO
basis.Thiswaybackcangetridofsecuritiesintheshortrun.CommercialbankcanalsoaskDFIs
tolendontheirbehalf.ForthispurposetheyprovideDFIswithsecuritiesandalsopay
commissionforthisservice.Similarlyifabankholdssecuritiesandwantstokeepthembutneeds
somecashforashortperiodoftime,itcanarrangethefundsthroughaREPOwithoutloosing
holdofsecurities.
InthesamemanneranindividualclientcangetcashfromabankagainstsecuritiesonREPObasis
withoutloosingtheownershipofsecurities.SBPalsooffersfundstobanksandfinancial
institutionson3rddayREPObasis.
IndicativeInterbankAverageREPOandcallrates
(Percentperannum)
Period

Overnight

1week

FY09

Repo

Call

Repo

10.6

13.2

11.2

1months

3months

6months

12months

call

Repo

call

Repo

call

Repo

call

Repo

call

13.9

12.5

13.9

13.6

14.1

4.4

8.0

4.5

(Source:DomesticMarketsandMonetaryManagementDeptt,SBP)
InAugust2009,SBPadoptedanewframeworkforitsmonetaryoperationbyannouncingan
interestratecorridor.Underthisframework,SBPintroducedanovernightstandingdeposit
facility.Therateonthisfacilitywillbe300bpsbelowthediscountrateandwouldeffectivelyact
asafloorratefortheovernightinterbankrepoborrowings.TheSBPpolicydiscountrateonthe
otherhandwouldserveasceilingontheupwardmovementinthemoneymarketreporate.
MoreoverbecauseofdelayedannouncementofmonetarypolicybySBPandaneventual
reductionof100bpsinpolicyrate(whichwaslessthanmarketexpectation)themarketinterest
rateadjustedupwards.
Theintroductionofthiscorridorisexpectingtohelpincontainingtheexcessivevolatilityin
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treasurybillsofpakistan|PakistanEconomy'sBlog

overnightreporate,wouldmakemonetarypolicytransmissionmoreeffectiveandfaster
transparencyinmoneymarketoperations.Consideringtheunrestsociopoliticalcircumstancesof
Pakistan,StatebankofPakistanhasalsoreduceditspolicyratefrom50bpsto12.5%.Inshorta
patheticconditionoflawandorderinPakistanisnotonlyaffectingherforeigninvestments
(Foreigndirectinvestmentshowsadeclineof13.8%incurrentfiscalyearincomparisonwith
previousFY)butalsoinfluencingmoneymarketofPakistanpejoratively.
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