SBP raises Rs226bln in treasury bills auction

KARACHI: The State Bank of Pakistan (SBP) on Wednesday sold Rs226 billion worth of treasury bills at an auction, much lower than the target of Rs300 billion fixed by the finance ministry for borrowing from the banks.
The SBP sold Rs30 billion worth of six-month government papers at 6.9513 percent, same as the previous rate. It sold Rs6 billion of three-month paper at 6.9308 percent, unchanged from the last auction. The central bank also sold Rs190 billion of one-year treasury bill at 6.9710 percent, up 115 basis points from 6.9595 percent.
Cut-off yields on market treasury bills were little changed, hinting at soft inflation outlook, but no further drop in interest rates in the months ahead.
“There was no extraordinary participation seen in the latest auction. However, investors parked Rs190 billion into long-term government papers, higher than the investments made in the short tenures of three and six months,” said an analyst.
“We looked for a chief reason, but [there is] nothing to understand except assumptions of persistent declining trend in inflation and no change in the central bank stance on monetary policy decision to be announced next month.”
Analysts said bank investment in government papers will remain intact as they are safe havens for the banks in the low interest rate environment.
Sudden price swings, to which stock markets are prone, are rarer in the vast and easily transacted world of the treasuries.
“Investors are pouring cash into the long-term t-bills as they are cautious about the long-run inflation outlook fuelled by worries about recent heavy rains and floods in the country,” said Dr Salman Shah, former federal finance minister.
Analysts foresee that the inflation data for August, measured by the consumer price index (CPI), which is to be released during the first week of September, will remain soft.
The CPI inflation stood at 1.8 percent year-on-year in July compared to 3.2 percent in June 2015 and 7.9 percent in July 2014.
The SBP kept the policy rate unchanged at 6.5 percent in the monetary policy announcement on July 25.
The government heavily borrowed from banks through Pakistan investment bonds (PIBs) and T-bills during the last fiscal year and used the funds to finance budget deficit and retire some of its debt with the central bank.
Government domestic debt increased Rs1.19 trillion to Rs12.22 trillion during Jul-May FY15. The bulk of the increase is due to PIBs (Rs883 billion) followed by market treasury bills (Rs296 billion).