07/10/2008
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Bankers seek letup in high rates
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KARACHI: Pakistani bankers called for urgent action by the central bank to stop a liquidity crunch putting banks in jeopardy as overnight call rates closed between 25 and 28 per cent on Monday. "It should do something immediately, as there is risk for systematic failure," said a senior banker, who requested anonymity due to the authorities' sensitivity regarding management of the markets.
Some bankers said they expect the State Bank of Pakistan to reduce banks' Statutory Liquidity Requirement (SLR) or Cash Reserve Requirement (CRR) by at least 50 basis points, or possibly both.
"The central bank must rise to the occasion and help the market by easing liquidity," said the banker who feared some banks could be in danger of default or eventual failure.
In the longer term, bankers said the central bank may need to increase the discount rate.
The central bank increased the discount rate to 13.0 per cent in July and left the SLR and CRR unchanged at 19.0 per cent and 9.0 per cent, respectively.
After averaging around 13 to 15 per cent, call rates rose dramatically due to a liquidity crunch resulting from Pakistan's chronic balance of payments deficit. Rates mounted as high as 52 per cent on Saturday, dealers said, though that was after a three-day national holiday to mark the Eid-ul-Fitr. On Tuesday call rates closed at 22 to 24 per cent. Bankers said the liquidity crunch was also partly owing to tax payments due at the end of the quarter and demand for cash for the festivities and charity payments that traditionally follow the end of the month of Ramadam.-Reuters
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