KARACHI, April 13: Liquidity-starved banks were compelled to borrow heavily from the discount window of the State Bank on Thursday while the overnight rate remained at the highest level.

Banks borrowed over Rs21 billion from the SBP and dealers said more liquidity needed to meet the demand. The SBP had been injecting liquidity for the last couple of weeks and the banks were borrowing from the discount window amid tight monetary situation.

The overnight rate stood at 8.9 per cent that means the cost of borrowing for banks is at the highest level. However, the banks still prefer for long-term investment in the security papers.

Banks’ cost of borrowing from the SBP discount widow was nine per cent while they were investing at lower rates like lower return on T-bills.

On Wednesday, the banks invested Rs14.650 billion in 12-month T-bills and only Rs100 million each were invested in three-month and six-month maturity papers.

Analysts said that long-term investment in the security papers reflected the confidence of banks in the prevailing interest rates and believed that it could be changed negatively.

The return on 12-month T-bills was lower than the discount rate. The return on the 12-month paper was 8.7907 per cent.

Money dealers said the scarcity of liquidity would remain in the market and the banks would have to borrow more from the discount window. The SBP could also inject liquidity for smooth functioning of the money market.