Govt raises Rs316 billion in T-bill auction

KARACHI: The government raised Rs316 billion through an auction of the T-bills on Wednesday, against a pre-auction target of Rs650 billion and maturity of Rs685 billion, the central bank data showed.

Yield on a short-duration Market Treasury Bills (T-bills) remained stable, although the market expects a further hike in interest rates at an upcoming monetary policy review scheduled for January 23.

The cut-off yield on the three-year T-bill stood at 16.9999 percent, unchanged from the previous auction held on January 3. The yield on six-month paper was 16.8255 percent. The bids were rejected for the 12 months' papers. Analysts said that a bid pattern in the fresh auction revealed expectations for increased interest rates at an upcoming monetary policy.

As opposed to the target of Rs650 billion and maturity of Rs685 billion, the government raised Rs316 billion through the auction. Participation of Rs626 billion was observed.

“I think SBP [State Bank of Pakistan] will further increase the rate by 100 to 200 bps [basis points] considering rising inflation and falling foreign exchange reserves,” said Mohammed Sohail, a CEO at Topline Securities.

The SBP raised the policy rate by 100 basis points to 16 percent in November.

Due to core inflation that is still sticky and a potential increase in energy prices, the inflation monster is not anticipated to settle down in the near future.

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

“We expect SBP to raise interest rates by 1% to 17% in the upcoming monetary policy this month,” said Tahir Abbas, the head of research at Arif Habib Limited.

As a consequence of a special auction held on January 3 when it borrowed Rs655 billion from commercial banks, the government has sufficient finances this time around because it borrowed a smaller sum through today’s auction. Amidst rapidly diminishing foreign exchange reserves, a falling rupee, and deteriorating macroeconomic indicators, Pakistan is currently experiencing severe economic turmoil. The country’s foreign exchange reserves with the SBP fell to the lowest in almost nine years, enough to cover only one month of imports.

After a standoff with the International Monetary Fund over tax targets delayed loan payments from being disbursed, Pakistan's economy was severely cash-strapped. Floods that submerged a third of the country and reduced its growth by half made the situation worse.