Rate of return edges down in PIB auction

Govt raised Rs155b by selling three to 10-year bonds

KARACHI:

The rate of return for commercial banks on Wednesday dipped slightly in the range of one to three basis points on long-term financing for three to 10 years for the government, but the rates remained largely around the recent three-year highs. The government raised Rs155 billion at interest rates in the range of 13.15-13.97%, which were close to the three-year highs recorded in August 2019.

The government raised the funds from the sale of three to 10-year Pakistan Investment Bonds (PIBs) to commercial banks. Commercial banks kept the rates high ahead of the next monetary policy meeting scheduled for July 7. Financial markets have anticipated a further hike in the central bank’s key policy rate to meet the International Monetary Fund’s (IMF) condition of tightening the monetary policy to control high inflation and reduce the circulation of money in the economy.

The central bank has hiked its key policy rate by 675 basis points since September 2021 to 13.75%. The Ministry of Finance borrowed Rs155 billion against the target of Rs150 billion in the PIB auction. Banks, however, offered Rs545 billion for investment in the sovereign debt securities. The breakdown of data suggested that the government raised Rs8 billion against three-year PIBs compared to the target of Rs50 billion.

The cut-off yield dropped three basis points to 13.97% compared to the three-year high at 14% in the previous auction held on May 25, 2022. The government borrowed Rs101 billion through the sale of five-year PIBs against the target of Rs50 billion. It acquired the financing at a cutoff yield of 13.18% compared to 13.19% in the previous auction.

It borrowed another Rs46 billion via 10-year PIBs against the target of Rs50 billion. It raised the financing at a cutoff yield of 13.15%. The government had rejected all bids for the 10-year papers in the previous auction.