KARACHI: The government raised Rs144 billion through an auction of fixed-rate Pakistan Investment Bonds (PIBs) on Wednesday, while the yield on short-duration paper rose.
The raised amount was above the pre-auction target of Rs100 billion. The cut-off yield on a three-year PIB increased by 34 basis points to 18.3899 percent.
The government rejected the bids for 5 and 10 years, while no bids were received for 15, 20, and 30 years papers, according to the SBP’s auction result. “The government doesn’t want to increase rates on longer duration bonds. That's why they picked up a decent amount in a 3-year paper,” said Mohammad Sohail, CEO of Topline Securities.
Analysts stated that it was expected that the government wouldn't offer higher returns on treasury bills and bonds in future auctions. Additionally, it was anticipated that if the government to raise a lower amount in auctions, it would help reduce the yields as the market might compete. The government borrowed a heavy amount of Rs2.22 trillion through the auction of a T-bill held last week.
According to analysts, the latest T-bills and PIBs auctions show that the market believes interest rates have peaked. Last week, the State Bank of Pakistan (SBP) raised the policy rate to a record 21 percent to curb crippling inflation.
The SBP is confident that the rate increase, coupled with earlier tightening, will enable it to meet its medium-term inflation target over the next two years. However, analysts claimed that the central bank's evaluation was at risk due to the ambiguous nature of domestic as well as global politics.
The cycle of monetary tightening has come to an end, according to analysts. The record-high consumer price index inflation in March (35.4 percent) had a significant impact on the monetary policy decision.
The removal of the electricity subsidy, the increase in the general sales tax to 18 percent, a rise in the federal excise duty on cigarettes and sugary drinks, and recent exchange rate depreciation have all contributed to an increase in inflation expectations.