SBP cuts coupon rates of all three maturity PIBs

KARACHI (December 17 2002) : The State Bank of Pakistan on Monday has slashed the coupon rates of Pakistan Investment Bonds (PIBs) of all the three maturities by 2 percent, an expected move following the cut in discount rate last month.

The State Bank invited tenders for the auction of 3, 5 and 10 maturity of PIBs on 30th of this month.

“The coupon rate for PIBs to be sold in the auction is 7 percent, 8 percent and 9 percent per annum for 3, 5 and 10 years maturity, respectively,” said the SBP. Earlier, the rate was 11, 10 and 9 percent for 10, 5 and 3 years maturity PIBs.

The State Bank of Pakistan slashed the discount rate by 1.5 percent, from 9 to 7.5 percent per annum on mid of the last month.

Following the discount cut, the State Bank also reduced the bench mark 6-month Treasury Bills by 1.53 percent to 4.84 percent per annum. It was further reduced to 4.45 percent.

The new discount rate, 7.5 percent, was almost half of what it was 15 months before. The discount rate was 14 percent in July 2001.

The cut in the discount rate was a signal that the State Bank was going to bring down the interest rate across the board.

The market expects that the return on National Saving Schemes are in offing and they might face the same fate and expected a cut of 2 percent in the NSS by next month.

“The situation has been developed for the banks to search for the new products and find new ways of earning,” said a money market expert.

Last week the Adviser to the Prime on Finance and Economic Affairs, Shaukat Aziz told the bankers that gone are the days when banks could earn from investing in the government papers.

The demand for the PIBs having gone higher in the market resulted in decline of the yield on the bonds. The 10-year PIBs of Rs 100 was traded at Rs 134, a record high price. The yield on 10-year bond was 6.35 percent and for five years it was 5.62 percent.

The expected cut in the NSS might bring some criticism since most of the pensioners and widows have invested in the high return government papers. The Defence Saving Certificates offers 11.7 percent per annum.

For a remedy to the situation, the government has decided to launch another paper of high return and it would be strictly for the pensioners. Shaukat said last week that the new paper would be launched within a month.

“There was a room for further cut in the PIBs rates but the State Bank wants to keep the NSS rate in double digit even after the expected cut in near future,” said Salman Beg of Finex Securities.

The auction target for 3, 5 and 10 years PIBs is Rs 2 billion, Rs 2 billion and Rs 1 billion respectively.

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