August 21, 2003	Thursday	Jumadi-us-Sani 22, 1424

KARACHI, Aug 20: The State Bank on Wednesday auctioned Rs36.7 billion worth of six-month treasury bills to drain out Rs36.48 billion from a fairly liquid inter-bank market. While conducting the auction the SBP managed to keep the weighted average yield almost unchanged at 1.21 per cent.

The central bank had fixed a sale target of Rs32 billion for the treasury bills. Bankers said the auction generated bids worth Rs56.3 billion of which the SBP accepted Rs36.7 billion and rejected the rest. They admitted that part of the total Rs56.3 billion bids were not backed by actual availability of liquidity with the banks. Senior bankers said by keeping the weighted average yield on the bills almost intact the central bank has signalled to the market that a further decline in T-bills yield was not very likely.

Banks had been concerned about a consistent fall in the T-bills yield for more than a year. The weighted average yield on six- month bills has fallen from 6.28 per cent in June 2002 to 1.65 per cent in June 2003 showing a big decline of 4.63 per cent in the last fiscal year. In the first two months of the current fiscal year also the yield has come down from 1.65 per cent to 1.21 per cent showing a fall of 41 basis points.

This huge fall in the yield on six-month T-bills since June last year has brought down the export finance rate to 3 per cent this month from 8 per cent a year ago.

Export finance rate or the rate of interest at which eligible exporter can get finances from banks is indirectly linked with the cut-off yield on six-month T-bills. Indirectly because the SBP keeps its export refinance rate almost at par with the cut-off yield on six-month treasury bills and allow the banks to charge 1.5 per cent markup on export financing over and above it. Since the cut-off yield is normally a bit higher than the weighted average yield the export refinance rate is currently around 1.5 per cent.