Market reaction mixed over T-bills auction
According to the first estimates, real GDP grew by 2.1% year on year in the first quarter of FY24, compared to 1% in the same quarter last year. PHOTO: FILE
The market remains mixed over the latest T-bill auction held in Pakistan and while few segments term it mishandling of the central bank, others believe that the State Bank of Pakistan had little role to play in it.
The central bank’s mishandling of the latest T-bill auction resulted in hefty losses to the national exchequer, said Federation of Pakistan Chambers of Commerce and Industry (FPCCI) President Mian Nasir Hyatt Maggo.
In a statement on Monday, he referred to the T-Bill auction, held on January 26, during which the three month T-bill yielded 10.75% return while the yield of six month T-bill amounted to 11.5%. He pointed out that the policy rate was stable at 8.75% in the latest monetary policy announcement of the central bank.
“Even Finance Minister Shaukat Tarin admitted that SBP should have checked how the commercial banks were able to sell the treasury bills at 2-2.75% over and above the policy rate,” he said.
Maggo recommended imposing a penalty on commercial banks due to their rent-seeking behaviour.
However, some segments of the market differed from the notion that SBP mishandled the case and cited that the central bank was only a facilitator.
Topline Securities Head of Reserch Atif Zafar told The Express Tribune that the State Bank of Pakistan had not mishandled the auction at all.
“There is a maturity of the existing domestic debt and new debt is raised through T-bill auction to finance it,” he said. “If the central bank had rejected the auction, then, in theory, the government of Pakistan could have defaulted on its domestic debt.”
Free market bidding by the commercial banks takes place in the auction and the financial institutions were of the view that the interest rates would hike hence they bid on the higher side, he added.
According to him, the central bank had nothing to do with it.
The banks may have exploited the situation however, the central bank took immediate action through open market operations (OMOs)”.
Ismail Iqbal Securities Head of Research Fahad Rauf said that the State Bank of Pakistan facilitates the auction while the Ministry of Finance raises the money hence the role of the central bank was limited.
He further said that T-bills have a validity of less than a year while permanent interest-bearing shares (PIBs) are valid for more than a year. He explained that these were the two monetary instruments used by the government to raise financing from the market
The central bank was contacted to give its version on this issue however the response was not received till the filing of the story.
Published in The Express Tribune, February 8th, 2022.
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