SBP sells Rs2.107 trillion worth treasury bills

KARACHI: The central bank on Wednesday witnessed massive participation from banks in short-term treasury bills with staggering inflows of Rs2.106 trillion – much higher than the Rs100 billion target – as it significantly pushed up yields on the paper, giving a vivid sign of further rate hike.

The State Bank of Pakistan (SBP) sold Rs2.106 trillion worth of three-month market treasury bills (MTBs) in an auction, which was much higher than the pre-auction target.

Cut-off yields for three-month tenor increased to 10.5500 percent from 10.3013 percent in the previous auction held on January 30.

Analysts said the participation indicated that the central bank would further raise interest rate in its March’s monetary policy review meeting.

“We see more upward revisions in policy rate by the end of the current fiscal year, which could accelerate the yields on short-term T-bills further, and continue to result in the market interest being heading towards three-month paper,” an analyst said requesting anonymity.

The SBP raised its key policy rate by 25 basis points to 10.25 percent in last monetary policy announced in late January to address inflation concerns.

The interest rates have cumulatively been raised to 450 basis points since the last year in a back-to-back policy rate hike.

The yield on six-month T-bill stood at 10.5999 percent, while the SBP sold Rs1.187 billion worth of the paper. The 12-month T-bills, however, failed to attract the offers from banks.

The consumer price inflation clocked in at to 7.2 percent in January from 6.2 percent in previous month. The SBP projected inflation in the range of 6.5 to 7.5 percent.

Analysts said sentiments for further devaluation in the rupee to meet the

International Monetary Fund’s precondition to adjust exchange rate and an inflationary outlook are fuelling expectations of further policy rate rises during the fiscal year.

Tighter fiscal and monetary policies are required to achieve macroeconomic stabilisation, analysts added.