SBP slashes 6-month treasury bills rates by 1.53 percent

KARACHI (November 28 2002) : The State Bank of Pakistan on Wednesday has cut the 6-month Treasury Bills rates by 1.53 percent to 4.84 percent after slashing discount rate by 1.5 percent last week.

The first auction of 6-month Treasury Bills under the lowered discount rate attracted over Rs 68 billion, more than three times than the target of the central bank.

The SBP raised Rs 25 billion out of the total bids of Rs 68.7 billion. The pre-auction target was Rs 25 billion.

Speculative buyers were found in the front line offering bids of 5.3 to 5.4 percent, while real buyers kept bidding around 5 percent.

The six-month prevailing rate in the money market was 4.8 percent. The speculators could earn if the T-bills rates would have been around 5.3 or 5.4 percent, said market experts.

The decline in the 6-month T-bills would result in the fall in export refinance rate currently at 8 percent. The export refinance rate has been pegged with the rate of 6-month T-bills.

The market experts believe that the new export refinance rate would be around 6.5 percent, which would certainly provide significant relief to the exporters.

The cut in T-bills rate would impact upon the lending rates of the banks. Banks were not comfortable with the slashing of discount rates as they see decline in their margin of profit. They argue that further cut in the return to depositors would be highly difficult while the cut in the lending rate looks imminent.

The government had been viewing possibility of cut in the interest by 2 percent because of low inflation between 3.5 to 4 percent. However, the business circle have been complaining that despite many cuts in the rates of government bonds and discount rates, banks were reluctant to pass on this cut to customers.

The government has been talking about the single digit interest rate but the borrowers find much higher than the single digit.

“This is a wrong impression that banks did not cut the lending rates as the average lending rate has come down to about 12 percent while it was 14 percent a year before,” said a banker adding that the banks would have to further reduce the lending rates.

The banks analysed that with the further cut in the return to the depositors, more money would fly towards the higher yielding government bonds, National Saving Schemes and share markets. It will impact upon the deposits of the banks.

The total deposits of the commercial banks are about $1.5 trillion while the NSS alone grabbed Rs 742 billion. The trend shows that the NSS was still attractive as half of the total banks' deposits are with NSS. The NSS offers maximum 11.6 percent per annum while the banks could now offer maximum 7 to 8 percent, bankers said.

The market on Wednesday was liquid with Rs 35 billion and after raising of Rs 25 billion by the SBP, the market was still long with Rs 10 billion.

The high liquidity of the market was reflected from the huge bids of over Rs 68 billion while the target was only Rs 25 billion, said market experts.

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