Govt raises Rs161bln through fixed rate PIBs auction

KARACHI: The government on Wednesday raised Rs161 billion through the auction of fixed rate Pakistan investment bonds (PIBs), while the yields remained flat across the board. The raised amount was higher than the pre-auction target of Rs125 billion. The cut-off yield on the three-year bond fell one basis point to 8.69 percent from 8.70 percent in the previous auction held on May 6.

Yield on the five-year paper was unchanged at 9.20 percent, whereas yield on 10-year paper held steady at 9.84 percent.

The bids for the 15, 20 and 30 years PIBs were rejected by the government.

The central bank said it sold Rs153.8 billion worth of three-year paper and Rs7 billion of the five-year and Rs99 million worth of 10-year paper.

With no expectations for the change in the interest rates in the near-term, investors are concentrating their offers in the short-term PIBs. This is evident from the increasing preference of the market for three-year PIBs.

The bulk of the total competitive offers for the PIBs received in the latest auction were for the three-year paper that was Rs294 billion.

Analysts said investors expect the policy rate to remain unchanged at least in the upcoming monetary policy meeting due next month. The interest rates are likely to be hiked from September.

The Monetary Policy Committee (MPC) maintained the policy rate at seven percent last month and emphasised that it will continue to monitor developments affecting the outlook for inflation, financial stability and growth. MPC expects monetary policy to remain accommodative in the near-term, and any adjustments in the policy rate to be measured and gradual to achieve mildly positive real interest rates over time.

The MPC believes inflation is likely to remain at the upper-end of the announced inflation target of 7-9 percent, which is mainly attributable to hike in electricity tariff and food prices, and expects inflation to gradually fall towards 5-7 percent over the medium-term as supply shocks end.

The Consumer Price Index (CPI) based inflation fell to 10.9 percent in May from 11.1 percent in the previous month.