Short-term treasury yields ease; Rs1.742tr raised

KARACHI: The government raised Rs1.742 trillion through the auction of Market Treasury Bills (MTBs) on Wednesday, where yields on short tenor papers decreased slightly.

The yield on the three-month T-bill decreased 2 basis points (bps) to 15.23 percent, the auction result released by the State Bank of Pakistan (SBP) showed.

The cut-off yield on the six-month paper moved 15 bps down to 14.80 percent. Yields on a 12-month paper remained unchanged at 14.95 percent.

The target for this auction was Rs800 billion.

Analysts were expecting the State Bank of Pakistan to maintain the previous yield on the long-term papers. About a trillion rupees were parked with SBP at 12.75 percent, which is excess liquidity with the banks. The government mopped up excess amounts with an aim to reduce circular debt as one of the conditions of the IMF has been to reduce line losses, cut circular debt, and reform the energy sector.

The SBP will announce its monetary policy decision on July 7.

Analysts said fiscal measures to lift weight off SBP’s shoulders, a 50-100 bps hike is likely in the upcoming policy next week.

“Inflation is the biggest challenge facing world economies, and the global distillate fuel oil shortage led price increase is expected to make matters worse. For Pakistan, we forecast June 2022 CPI (consumer price index) inflation to jack up to 19.6 percent YoY versus 13.8 percent for May,” said an analyst at Alfalah Securities in a report.

The government has already made things difficult for consumers and businesses through the imposition of 10 percent super tax, massive hike in retail fuel and electricity prices, planned adjustment in gas tariffs, and recent rupee devaluation.

“Hence, we expect a token 50bps increase in policy rate in upcoming monetary policy. We see real interest rates to remain in the negative territory in most of the 1HFY23 (delay in IMF program is a potential risk to our call on the interest rates),” the brokerage report said.