SBP sells Rs467 billion of T-bills; yields fall

KARACHI: Yields on market treasury bills fell at an auction on Wednesday, indicating the central bank could consider cutting policy rate as early as December given that inflation has passed a peak, analysts said.

The weighted average annual yield on the benchmark six-month T-bills fell to 13.9064 percent from 13.9399 percent at the previous sale on August 28, the State Bank of Pakistan (SBP) said.

The cut-off yield on the 12-month paper came at 13.8312 percent from 14.1880 percent in the previous auction. Yield on three-month paper came at 13.7361 percent from 13.7490 percent.

"This was an indicative auction ahead of monitory policy meeting due this month, and I think that the central bank has given a reasonable cut-off," said a treasury dealer. Dealers said yields are likely to edge down further in the auctions to follow.

The central bank said it sold Rs 52.35 billion worth of three-month bills, Rs65.07 billion of six-month and Rs350.02 billion of the 12-month paper. It received total bids worth Rs1.649 trillion against a combined pre-auction target of Rs600 billion. Settlement of the auction will take place on Thursday.

The SBP’s Monetary Policy Committee is expected to hold its meeting by third week of the ongoing month to announce policy rate for the next three months. The central bank raised its policy rate by 100 basis points to an eight year high of 13.25 percent in July to quell inflation pressures.

Consumer inflation slightly edged up to 10.5 percent for August compared to 10.3 percent in July after the government made changes in CPI measuring basket. The CPI numbers were within the range of central bank’s annual forecast of 11 percent to 13 percent.

Analysts said auction results were widely expected and they confirmed market’s view that the key rate will be cut later this year. “Aggressive participation in the auction suggested that the rate had touched it peak and the central bank will consider cutting the key rate by December, but the final decision should depend on economic performance in current and next quarter,” another analyst said.

“The regulator deems it possible to ease monetary policy in coming winters after a relative stability in rupee value and price inflation.” Reza Baqir, governor SBP in June said the country has come out of the economic crises as it has achieved economic stability including financial one.

"Uncertainty and instability was a serious challenge to the country, which is now over as the economic team tackled the situation very effectively. Pakistan's future is bright," Baqir then told the media.