Govt rejects all bids in PIBs auction

KARACHI: The government on Wednesday rejected all the bids for the Pakistan investment bonds as the banks sought higher yields on the long-term government papers because of their falling profitability, traders said.

The government planned to raise Rs100 billion from PIBs in the latest auction. The banks offered Rs75 billion. The traders said the rejections might be due to higher returns sought by the banks, facing decline in earnings due to soft interest rates.

“The banks participated in the auction as the government is in need of cash to finance the budget deficit,” said a bond trader.  “Pricing seems to be the main factor behind the rejection.”   The cut-off yield on short- and long-term PIBs hovered in the range of 6.1 percent to 7.7 percent in the previous auction, held on September 22.   

Analysts viewed that interest rates are bottomed out and the central bank is likely to maintain the status quo in the next policy review, scheduled in November. They said an increase in global oil prices is expected to leave little room for the central bank to take expansionary stance at the next policy meeting.

The central bank kept the policy rate unchanged at 5.75 percent in its September review. A rising inflation in recent months also supported the market view on the current rate scenario.

Consumer inflation increased to 3.9 percent in September from 3.6pc in the preceding month. The central bank forecasts average consumer inflation in the range of 4.5-5.5 percent for the current fiscal year of 2016/17.