State Bank sells treasury bills worth Rs278.4 billion

KARACHI: The State Bank of Pakistan (SBP) sold Rs278.4 billion worth of market treasury bills at an auction on Wednesday, while yields remained stable, the central bank reported.

The cut-off yield on three-month short term government papers was 5.9463 percent, unchanged from the previous auction, held on March 1. The central bank sold Rs138.8 billion treasury bills.

The SBP sold Rs139.6 billion of six-month short-dated government securities at 5.9896 percent, the same as the previous auction. However, the government rejected the bids for the one-year paper. The raised amount in treasury bills was lower than the target of Rs350 billion set by the ministry of finance for the said auction.

Analysts said the latest auction was an indication that market participants might be expecting interest rates to stay flat in the monetary policy statement to be announced this month. The SBP’s monetary policy committee is expected to meet next week to unveil decision.           

“Indicators and reports emanating from inflation, budget and current account deficits show the central bank is likely to keep policy rate unchanged at 5.75 percent,” said an analyst. “Though, traders and investors are unnerved about inflation outlook, deteriorating balance of payments and high budget deficit turn them wary.”   

Many analysts predict the overall FY17 inflation to hover around four percent. The consumer price index (CPI) inflation rose 4.2 percent in February from 3.7 percent in the preceding month.

Government borrowing from the banking system is also expected to remain high due to the rising budget deficit. “With no IMF oversight and election motivated spending priorities, development outlays are likely to pick-up and subsidies are expected to rise, resulting in fiscal slippages,” said another analyst.

“We see budget deficit to exceed five percent of gross domestic product (GDP) during FY17,” the analyst added. The budget deficit has already reached 2.4 percent of the GDP in the first half of this fiscal year.