SBP to raise Rs5.15trln through MTBs, PIBs in three months

KARACHI: The central bank will auction Rs5.15 trillion worth of Market Treasury Bills (MTBs and Pakistan Investment Bonds (PIBs) in September-November 2018 to help the government finance the budget deficit, the State Bank of Pakistan said on Thursday.

The SBP would sell Rs4.850 trillion of three, six, and 12 months debt through t-bills. The central bank also plans to offer Rs150 billion worth of three-, five-, 10 and 20-year PIBs, according to tenor-wise targets of PIBs.

Besides, the SBP issued PIB floating rate auction calendar. It showed that the SBP would auction Rs150 billion of 10 year floating rate PIB on October 17.

Fresh targets indicate that the government would continue to rely on bank borrowing to meet its spending requirement.

Analysts said the government has budgeted Rs1 trillion in borrowings from the banking sector for FY19—an estimate which may be revised upwards due to the ongoing economic scenario and liquidity within the banking sector.

The budget deficit reached 6.6 percent of gross domestic product in FY18, compared with 5.8 percent in the previous year, reaching a five year high.

It has increased potential for banks to make easy money from investing in government securities amidst a negative credit spread.

“We expect another 100-150 basis points in rate hikes during the remainder of 2018, as the country moves into further monetary tightening, on account of soaring aggregate demand pressures, rising inflation, and twin deficits at non-optimum levels,” an analyst at Taurus Securities said in a report.

“Consequently, aggressive sentiment towards rate hikes may push the industry to focus on building hefty MTBs books, increasing allocation yet again.”

The SBP raised policy rate by 100 bps to 7.5 percent in July.

“We estimate banks to have subscribed to 81 percent of the currently outstanding MTBs amounting to Rs4.6 trillion, accounting for 59 percent of their investment portfolios based on the latest industry numbers issued by the SBP,” the report added.

Figures issued by the central bank showed that commercial banks holdings in the government securities slightly rose to Rs7.372 trillion as on June 30, 2018, compared with Rs7.363 trillion in the corresponding period last year.

The SBP’s data showed that the government retired Rs163 billion to the scheduled banks from July 1 to August 17, 2018 against Rs121 billion it borrowed in the same period of last year to finance the budget deficit.

The consumer price index inflation rose to 5.8 percent, up from 3.4 percent in the corresponding month last year.