The ceiling imposed on the net domestic assets (NDA) of SBP for end September was easily achieved. In the 90s, SBP used to shut down its REPO window to achieve the NDA target. Market experts feel that from Tuesday/Wednesday the rupee weakness will once again come into play unless SBP moves its overnight rupee rates sharply upwards giving incentive to banks to hold rupees instead of dollars. "The yield curve has become steep and corridor has widened," they said. Both the 10-year PIB and National Saving instruments' yields have risen and the market is perplexed why both interest rate and dollar parity are heading north.
Meanwhile, Governor SBP Yaseen Anwar held a meeting with about a dozen bank heads, on Monday, and thanked a couple of banks who had co-operated with SBP while market was experiencing unprecedented volatility last week. He said "there are a few naughty banks present here who conducted deals at Rs 110 and Rs 111 which sent the market reeling."
This newspaper, however, understands that a demand of 59 million dollars for crude oil purchased by Pakistan Refinery Limited was instrumental in unleashing a dollar frenzy as five banks wanting to cover the same deal sought 250 million dollars from the market thus putting unusual pressure on a thin market.
Something needs to be done about hefty oil payments. A mechanism needs to be agreed so that similar episodes are not repeated, say experts. Another thing that needs to be urgently done is restoration of credibility of the central bank as in today's world communication with the market holds the key to stability. Also there needs to be price discovery in the market for the interbank market to exist. Economic managers need to manage the markets. At present, the market is clearly lacking direction and suffering from a negative perception. Both MoF and SBP bosses are expected to appear before the Senate Finance Committee, on Tuesday, to explain what last week's events. And, what the future holds?