Govt borrows Rs181b in T-bills auction

Yields drop after cut in benchmark policy rate.

KARACHI: The government borrowed Rs181.20 billion through an auction of market treasury bills on Wednesday, but the main feature of the day was a significant drop in cut-off yields after a 50-basis-point cut in policy rate in the monetary policy review last month.

According to State Bank of Pakistan data, banks, financial institutions and others purchased three, six and 12-month bills worth Rs181 billion compared to the auction target of Rs170 billion.

The government has been increasingly relying on domestic financing sources in the wake of a slowdown in external flow of assistance. The International Monetary Fund (IMF) has suspended its $11.3 billion loan programme since May last year owing to patchy reforms implemented by the government.

In the auction, yield on three-month papers came down to 13.07 per cent compared to 13.53 per cent in the previous auction held on July 27. Return on six-month papers fell to 13.28 per cent from 13.78 per cent earlier while yield on 12-month bills dropped to 13.38 per cent from 13.92 per cent.

The fall in yields was not unexpected following a 50-basis-point cut in the benchmark policy rate – at which the central bank lends to banks – to 13.5 per cent by the State Bank in the monetary policy announced on July 30. “The reduction in the policy rate definitely has had an impact on treasury bill yields,” said Hamad Aslam, Group Head of Equities BMA Capital.

Among treasury bills, financial institutions invested the highest amount of Rs112.21 billion in relatively long-term 12-month papers despite a cut in cut-off yields. In six and three-month bills, they invested Rs64.99 billion and Rs4 billion respectively.

Published in The Express Tribune, August 11^th, 2011.