CB injects Rs 15 b to meet liquidity shortfall

Monday, 17 December 2012 00:00 - - {{hitsCtrl.values.hits}}

By Wealth Trust Securities

With the settlement of the bill auction on Thursday, Central bank conducted its first Open market Operation (OMO) in six days by way of a reverse repo auction in order to infuse liquidity to the system. An amount of Rs 15.5 billion was injected on an overnight basis at a weighted average of 9.46%, which in turn saw the net liquidity shortfall increased further against its previous day.

However overnight call money and repo rates remained steady to average 10.34% and 9.39% respectively.

Furthermore, Central Bank in order to meet this shortfall on a more permanent basis, offered Rs 15 billion on Thursday by way of a term reverse repo auction for a period of one week. However all bids were rejected at this auction due to the rates submitted been too high according to market sources and it was widely expected that this auction will be conducted once again on Monday.

In secondary bond markets, the volatility that took place leading to the monitory policy announcement and subsequent to that, tamed down towards the latter part of the week as yields remained steady with the season ahead.

The 6 year maturity was the most favoured duration of the week as its yields dipped to an intra-week low of 12.80% against its weeks opening levels of 13.45% subsequent to the reduction of policy rates. The overall yields curve reflected a parallel shift downwards by the latter part of the week as well. The considerable dip in weighted averages at the weekly auction and expectations for yields to dip further at next week’s auction saw demand for secondary market bills towards the latter part of the week, with the 364 day bill changing hands from a low of 12.15% to a high of 12.30%.