State Bank borrows Rs174b

Six-month papers attract most of the investment.

KARACHI:

The State Bank of Pakistan (SBP) on Wednesday borrowed Rs174.4 billion on behalf of the government in an auction of market treasury bills at returns ranging from 13.39 to 13.85 per cent.

Investors, including banks, development finance institutions, individuals and others, made offers worth Rs307.07 billion for three, six and 12-month bills. Breaking from the trend for the past many auctions when a major part of investment went to three-month bills, this time most of the investment was attracted by six-month papers in which Rs108.11 billion was injected. Cut-off yield on the paper was 13.69 per cent, unchanged from the previous auction held on February 23.

“Investors agreed to lock their money for a long period, expecting that the central bank will leave the benchmark interest rate unchanged at 14 per cent in the monetary policy to be announced at the end of March. And they have reasons to do so because the pace of increase in inflation is expected to have slowed down and fiscal deficit is also likely to come under control,” said Khurram Schehzad, Head of Research InvestCap.

He said investment in long-term bills would also provide relief to the government which would have more time to keep the money to cover the fiscal deficit – the gap between state revenues and expenditures. There are other positives for the government as well that are increase in exports and record high remittances from overseas Pakistanis.

Schehzad said liquidity was quite high in the market but lucrative investment avenues were not much, so banks and institutions parked their funds in risk-free government papers.

In the auction, three-month bills attracted investment of Rs34.56 billion at a return of 13.39 per cent. In 12-month papers, investors put Rs31.72 billion at a return of 13.85 per cent.

Published in The Express Tribune, March 10^th, 2011.