The government has borrowed Rs135.49 billion at high interest rates through an auction of treasury bills to meet the gap in its income and spending, data released by the State Bank of Pakistan (SBP) shows.
In the auction of three, six and 12-month treasury bills – conducted by the SBP on Wednesday – banks, financial institutions and others offered bids worth Rs139.79 billion, much lower than the target of Rs175 billion set for the auction. “This explains why the government accepted most of the offers and that too at higher interest rates,” said Hamad Aslam, Group Head of Equities at BMA Capital.
He said shortage of liquidity in the market due mainly to heavy import payments and uncertainty before the upcoming budget may have deterred the institutions from making more offers for the attractive and risk-free investment papers.
For more than one year, banks have been investing heavily in treasury bills, leaving little for the private sector to borrow for starting and expanding their businesses. Low investment by the private sector, along with reduced foreign investment, floods, energy shortages and law and order situation, has affected economic growth of the country, which is expected to be around 2.4 per cent compared to the target of 4.5 per cent.
In three-month bills, the SBP accepted bids worth Rs16.32 billion at a return of 13.53 per cent compared to 13.21 per cent in the previous auction held on May 18. For six-month bills, bids worth Rs77.21 billion were accepted at 13.76 per cent compared to 13.60 per cent in the previous auction. For 12-month papers, bids worth Rs41.96 billion were accepted at yield of 13.91 per cent compared to 13.84 per cent previously.
Hamad Aslam said institutions had been investing more in six and 12-month treasury bills for some time compared to three-month bills because of expectations that the benchmark policy rate – at which the central bank lends money to banks – would remain unchanged at 14 per cent in coming months as the pace of increase in inflation had slowed down.
Published in The Express Tribune, June 2nd, 2011.
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