Inflation expected to decline in April


Express May 05, 2010

KARACHI: The Consumer Price Index (CPI) is expected to decline 0.75 per cent in April compared to last month and settle in the range of 12.10-12.20 per cent.

Recent hike in petroleum product prices may be the major factor in driving up the CPI. Transport and communications, which hold 7.32 per cent weight in the CPI basket, is also set to increase by 3.5 per cent compared to last month. However, food category prices, which remained the same, will contain the overall inflation indices.

The CPI measures weighted average prices of a basket of consumer goods and services, such as transportation, food and medical care. Changes in the CPI are used to assess price changes associated with the cost of living. Improving liquidity dents market yields The cut-off yield on benchmark six-month treasury bills fell to 12.14 per cent at an auction on Wednesday from 12.28 per cent in the previous auction on April 21. The State Bank raised Rs74.71 billion ($887.61 million) in the auction.

The target was Rs75 billion. Liquidity situation is improving from the recent inflow of $656 million received from the Coalition Support Fund and continued external flows of money from financial institutions. The liquidity situation has helped ease the yield of government treasury bills. Higher government borrowing requirements had kept upward pressure on bonds and securities.

Through regular market operations, the State Bank continued to inject appropriate amounts into the banking system and enabled participants to fund government borrowing requirements. The continued external flows from foreign funds are set to improve liquidity position. Moreover, announcements and expected payments for the resolution of the circular debt issue also indicate positive signs in this regard. On the flip side, the remaining quarterly government treasury bill auction would result in net outflow of Rs12.7 billion.

Based on the mentioned facts, the interbank liquidity situation is expected to improve going forward which should in turn help ease secondary market yields. On the back of these developments, market yields have already started sliding as three, six and 12-month bills posted respective declines of 6, 10 and 12 basis points.

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