Pak central bank hints at lowering discount rates

Karachi, July 17: Pakistan’s central bank said on Tuesday that after a period of relative stability in the value of the Pakistani rupee against the dollar, it was considering lowering discount rates.

“We are thinking of lowering discount rates but the decision will be made after seeing how the market behaves in the coming one or two weeks,” Mushtaq Ahmed, an economic adviser at the State Bank of Pakistan (SBP) said.4

Effective June 7, the central bank raised the discount rate to 14 per cent from 13 per cent in a bid to halt a slide in the rupee, which has lost more than 20 per cent of its value against the dollar since being floated on the inter-bank market last July. Money market dealers said the market currently had excess liquidity of around Rs 15-20 billion and the SBP’s lower than expected sales of treasury bills at an auction last week had also raised market worries about excess liquidity.

On July 11, SBP sold only Rs 6.1 billion worth of three- and six-month treasury bills against received bids of Rs 25.5 billion.

Interest rates on three- and six-month treasury bills fell at the auction by 10 and 50 basis points, respectively.

Dealers said they had expected the SBP to hold a special open market operation to suck in surplus rupees from major banks, but this had failed to materialise.

“We know market is liquid...but we will not go out of the way to suck extra liquidity,” the SBP’s Ahmed said. He added that the central bank had rejected bids at the last T-bills auction as the rates offered by banks had been far too high. The SBP generally holds treasury bill auctions every two weeks.

-- Reuters