KARACHI - To reduce the volatility in short term interest rates and to bring more transparency in the implementation of monetary policy, the State Bank of Pakistan (SBP) has decided to introduce an interest rate corridor for the money market overnight repo rates. The corridor will operate through standing overnight repo / reverse-repo facilities (i.e. floor & ceiling), setting a formal corridor for the money market overnight repo rates consistent with the monetary policy of the central bank. According to details of circular, the interest rate corridor will consist of two end-of-day Standing facilities offered by the SBP: Existing SBP 3-day Repo Facility will be renamed as SBP Overnight Reverse-Repo Facility, which will become the 'Ceiling, and a new SBP Overnight Repo Facility to absorb excess funds from the market will serve as the 'Floor of the corridor. The procedure for availing the end-of-day financing facility from the SBP at the 'Ceiling rate in case the market is short of funds will continue to be in accordance with the existing practices and instructions issued by State Bank of Pakistan from time to time in reference to the 'SBP 3 day Repo Facility (now renamed as SBP Overnight Reverse-Repo Facility) against Government of Pakistan Market Treasury Bills and Federal/Pakistan Investment Bonds. The overnight end-of-day standing repo facility at the 'Floor rate will be available to scheduled banks and primary dealers which are left with excess funds in the inter-bank market. These funds can be placed with State Bank of Pakistan in the form of an overnight repo against Treasury Bills at the 'Floor rate. Some of the operational details are as under: Only scheduled banks and primary dealers will be eligible to place the funds at the 'Floor rate with State Bank of Pakistan This facility will only be available at the end of the day, when it can be ascertained that the market has excess funds. The time for intimating this amount to the State Bank of Pakistan will be between 2:30pm to 3:30pm from Monday to Friday and between 12:00pm to 1.00pm on Saturday. (Specimen format is enclosed). The minimum amount for the Overnight Repo/Reverse Repo Facility will be PKR.100 million, and in multiples of PKR. 50 million thereof. The Treasury Bills acquired under the Standing Overnight Repo facility from State Bank of Pakistan will be SLR eligible. The 'Floor and the 'Ceiling rates (and the width of the corridor) will be advised by the State Bank of Pakistan from time to time as deemed necessary. State Bank of Pakistan will continue to conduct term Open Market Operations (OMOs) in the form of repos/ reverse-repos as per current practice in addition to these standing facilities. The interest rate corridor will be applicable from 17Aug, 2009.