SBP to raise Rs1.52trn through MTBs,PIBs auctions in March-May

KARACHI: The central bank on Tuesday said it would auction treasury and long-term papers worth Rs1.527 trillion in March-May period to meet the government’s borrowing needs.
During the last three months, the government raised Rs823 billion through the Market Treasury Bills after the average yields on three-, six-, and 12-month market treasury bills fell by at least 100 basis points; following a cut in the discount rate. The target was Rs775 billion.
According to the latest auction calendar released by the central bank, the government planned to borrow Rs1.375 trillion through the sale of three-, six-, and 12-month market treasury bills. The government is also set to raise Rs150 billion through the sale of three-, five-, 10-, and 20-year Pakistan Investment Bonds.
Analysts said the target set in the latest auction calendar show the government is still the major borrower in the market, as well as it is relying on banks to finance its fiscal deficit.
The government reduced its borrowing from the central bank, but continued to borrow heavily from the commercial banks.
It borrowed Rs959 billion for the budgetary support from the banks during July 1 to February 20, 2015, while it retired Rs165 billion during the same period of the last fiscal year, the provisional data on monetary aggregates showed.
Despite substantial cut in the discount rate, the demand from the private sector remains low and could not pick up momentum. Credit to private sector; however, dropped to Rs140 billion in July-February 2014/15 from Rs280 billion in the same period last fiscal year.
Eman Khan, a financial analyst said previously banks were more inclined towards financing the government needs, but the scenario may change after 2.25 to 2.5 percent cut in the coupon rates of all tenors in the March-May schedule.
“Banks will not be able to earn the same higher yields on PIBs and will aim to diversify their portfolios,” Khan said. “Credit off-take in the private sector may increase.”
Analysts said falling inflation expectations have revived banks’ interest in MTBs and PIBs. Furthermore, due to the non-realisation of planned external inflows and to meet the International Monetary Fund (IMF) target on government borrowing from the central bank, the government was compelled to rely more on commercial banks for deficit financing.
Pakistan’s Consumer Price Index inflation has been clocked in at over a decade-low of 3.24 percent in February 2015.
Since October 2003, this is the weakest reading. Previous month — January 2015 — inflation was recorded at 3.9 percent and 7.9 percent in February 2014.
The expected correction in inflation and the soft global commodity prices have improved the outlook for another rate cut in the March policy meeting.
“With inflation hitting lower every month, real interest rates hover around three percent,” Khan said.
“Inflation is also expected to ease in the coming months and we expect the SBP to cut the discount rate by 50-100bps in March.”