Govt raises Rs655 billion via T-bills auction

KARACHI: The government on Tuesday raised Rs655 billion through the auction of the Market Treasury Bill (MTBs), while the yield on short-duration paper stayed flat, a statement said on Tuesday.

The raised amount was higher than the pre-auction target of Rs300 billion, the State Bank of Pakistan (SBP) reported.

The cut-off yield on the three-year T-bill stood at 16.9999 percent, unchanged from the previous auction held on December 28, 2022. The bids were rejected for the six and 12 months papers.

Even though there is no debt maturing during the current week, there was a special auction to raise Rs300 billion that shows higher and urgent borrowing requirements of the country.

The government aims to borrow a record Rs4.8 trillion through the MTBs in the first three months of 2023 on a decline in revenue in December and higher spending, largely for debt servicing.

The Federal Board of Revenue reported a revenue shortfall of Rs225 billion against the monthly target for December, 2022.

Analysts expect the central bank to hike interest rates further in the upcoming policy review due in the current month.

However, they appear increasingly split on how much tightening is needed to tame inflation as the demand indicators are slowing down.

The next monetary policy review is scheduled on January 23, and some analysts predict a rate hike of 100 basis points (bps) while others anticipate a 150bps increase.

The central bank raised the policy rate by 100 basis points to 16 percent in November, 2022.

The SBP is actively monitoring core inflation for its monetary policy settings. It is expected that the policy rate to peak around 17.5-18.0 percent, and is likely to reverse from the third quarter of 2023, once the high base effect kicks into inflation reading, according to analysts.

The consumer price index inflation rose to 24.5 percent in December from 23.8 percent a month ago.

According to the SBP calendar, it will hold three auctions in January with a target of Rs1.6 trillion, followed by two auctions each in February and March with a target to mop up Rs1.1 trillion and Rs2.1 trillion, respectively.

The majority of the planned borrowing would be done through the MTBs with maturities of three, six, and twelve months.