State Bank sells Rs100b treasury bills

The State Bank of Pakistan (SBP) on Wednesday sold treasury bills worth Rs100.02 billion compared to offers of Rs198.15 billion, meeting the target of Rs100 billion set for the auction.

Cut-off yield for benchmark six-month treasury bills rose to 12.348 per cent compared to 12.30 per cent in the previous action. The central bank sold Rs43.6 billion worth of six-month paper against bids of Rs65.167 billion.

Banks, development finance institutions and non-bank financial institutions offered highest bids for the three-month paper which were worth Rs91.287 billion, but the central bank accepted Rs40.2 billion worth of offers only.

“The high bids for three-month treasury bills show that investors do not want to block their money for a long time and preferred to invest in short-term securities because of expectations that interest rates will rise in coming months,” a banker said.

He said contrary to expectations and demand of reducing interest rates, the central bank may increase the discount rate later in a bid to curb inflationary pressures.

Inflation rose 11.73 per cent in fiscal 2009-10 compared to the target of 9.5 per cent. Though inflation has come down from over 20 per cent last year, it is still high, particularly food inflation which rose 14.5 per cent in June.

“The big target of Rs100 billion for the auction suggests that government’s borrowing requirement has remained high,” the banker said.

Cut-off yield for three-month bills was left unchanged at 12.1 per cent. “The flat three-month rate indicates that the central bank may not increase interest rate in the near future,” a brokerage house dealer said.

The State Bank is expected to announce its bi-monthly monetary policy later this month. It has kept the benchmark discount rate unchanged at 12.5 per cent since November last year.

For 12-month bills, the State Bank got bids worth Rs41.698 billion and accepted Rs16.21 billion offers. Yield for the paper rose to 12.456 per cent compared to 12.41 per cent in the previous auction.

Published in The Express Tribune, July 15^th, 2010.