KARACHI, Nov 27: The State Bank on Wednesday cut the weighted average yield on six-month treasury bills to 4.76 per cent from the previous 6.34 per cent. This paves the way for reducing the export refinance rate from 6.5 per cent in November to 5.5 per cent in December.

Senior bankers said the central bank mopped up Rs24.4 billion against the target of Rs20 billion in an out-of-schedule auction of T-bills. The SBP had to auction six-month T-bills instead of three-month and one-year T-bills on Wednesday to lower the export refinance rate which is linked with the weighted average yield of six-month bills. Bankers said as the weighted average yield fell to 4.76 per cent on Wednesday from earlier 6.34 per cent this would bring down the export refinance rate from 6.5 percent in November to 5.5 per cent in December. But there was no official word on the matter from the central bank which normally announces the export refinance rate for the coming month at the end of the preceding month.

The State Bank had lowered its discount rate from 9 per cent to 7.5 per cent on November 16 but a technical problem was blocking the way for a consequent cut in export refinance rate. The SBP had auctioned six-month T-bills three days before the cut in the discount rate and the weighted average yield of the bills had remained unchanged at 6.34 per cent. That was why the SBP decided to postpone the auction of three-month and one-year bills slated for November 27 and instead auctioned six-month bills. The aim was to obtain a new lower weighted average yield so that it can automatically reduce the export refinance rate.

Bankers said what helped the central bank set a lower weighted average yield of the six-month bills on Wednesday was excessive liquidity in the market.

This excessive liquidity helped the SBP attract Rs67 billion bids for the T-bills at low rates of which the central bank accepted Rs24.4 billion bids and rejected the rest.

Bankers say if the export refinance rate comes down from 6.5 per cent to 5.5 per cent as is being anticipated then exporters would automatically be getting export finance at 7 per cent next month. In November they were getting export finance at 8 per cent.

Export finance rate is the rate at which the banks give loans to eligible exporters and export refinance rate is the rate at which they get reimbursement from the State Bank. Under the rules the banks can charge a maximum spread of 1.5 per cent over export refinance rate while offering export finance to the exporters.

The SBP has cut down its discount rate from 9 to 7.5 per cent hoping that this would enable the banks to cut down their own lending rates and consequently the private sector would borrow more from the banks.

A pickup in the private sector borrowing at cheaper rates is a must for reviving investment and production to lift the sagging economy.

Immediately after the discount rate cut local and foreign banks have started aggressive credit marketing and are offering cheaper finances to prime borrowers. But this would have only a limited impact on overall economic activity.

Businessmen and economists say no major pickup in the economic activity could be expected without the banks making an across- the-board reduction in their lending rates.

Till the end of last month the weighted average lending rate of all banks combined was a little less than 12 per cent.