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SBP sells Rs23.4bn six-month T-bills

KARACHI: State Bank of Pakistan (SBP) sucked in Rs23.4 billion from the financial system on Wednesday by selling market treasury bills of six-month tenor at a weighted average yield of 1.79 per cent.

The SBP pushed up the cut-off yield slightly for six-month T-bill by 16 basis percentage point to 1.84 per cent from 1.68, hinting it preferred a positive response on market sentiment.

Bankers said that the SBP move signalled that the central bank would continue to maintain an easy policy with a 15-25 basis point change in the interest rates.

The central bank got bids worth Rs40.5 billion for the six-month paper against a target of Rs22 billion, but accepted Rs23.4 billion only. It rejected offers worth Rs16.7 billion without assigning any reason.

Bankers and money market dealers were split in anticipating the SBP's move concerning the auction. Majority of banks particularly foreign banks feared a further cut in the rates. Whereas, dealers and brokerages were hopeful of a 15-20 paisa increase in the rates.

Banks showed a very little interest in the auction and the Rs22 billion target was a huge one in the given circumstances, said a treasurer of a big local bank.

The bid pattern of the auction testified a dull response from the banks. Out of Rs40 billion offers, state-run National Bank of Pakistan (NBP) offered Rs30 billion at rates between 1.64 and 1.84 per cent.

The SBP accepted bids worth Rs20 billion placed by the NBP while Citibank got approved bids of Rs2 billion, according to bid pattern of the auction.

Bankers said the central bank had anticipated a lukewarm response in the auction from banks. Because of this, the SBP raised cut-off yield of the paper to some extent, they said. But the rates would remain stable – all the SBP signalled, they added.

The six-month T-bill rate is the benchmark for 'export financing' rates. The average of three weighted average yields of six-month T-bill plus one and a half per cent when combined becomes export-financing rate.

The SBP through the sterilization policy is protecting exporters, who earn the country $9 billion a year. If the SBP set remittances free in the market, the dollar will depreciate, hurting the exporters badly.

Under the sterilization policy, the SBP has been mopping up excessive inflows of foreign exchange from the inter-bank market – and at the same time maintaining rupee liquidity on a higher side. That in turn has brought down the yields of T-bills.

Bankers say they expect yields of market treasury bills as well as government bonds will go down further, but bonds remain attractive for investment relatively. Bankers expect bonds' trading on the 'ready board' in the coming days.

Money market dealers said the 6-month T-bill traded at yields between 1.90 per cent and 2.35 per cent in the secondary market soon after the auction results came out. The said premia in swap transactions eased off considerably after the auction.

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