KARACHI, Oct 15: The State Bank on Wednesday scrapped all bids worth Rs21.1 billion for six-month treasury bills reinforcing its earlier signals that it wants to keep the T-bill rates stable at the current levels.

Senior bankers said the auction of the T-bills attracted total bids worth Rs21.1 billion against the sale target of Rs10 billion, adding that the SBP scrapped all the bids. Like all central banks the SBP did not give any reason but the very rejection of the bids made it clear to banks that it does not want to let T-bill rates rise sharply.

“This reinforces earlier SBP signals that it wants to keep T- bill rates stable at the current level,” said noted economist Dr Shahida Wizarat. She said that a low inflation (up 1.78 per cent year-on-year in the first quarter) leaves enough space for the policy makers to continue with the present loose monetary policy stance.

Senior bankers said the banks participating in T-bills auction had demanded 1.73-2.23 per cent yield against the previous cut-off of 1.65 per cent. Sources close to the SBP said the central bank would have to increase the cut-off yield to 1.80 per cent had it decided to sell Rs9.85 billion bills against the target of Rs10 billion. And if it had accepted all bids worth Rs21.1 billion — the yield would have shot up to 2.23 per cent.

The sources say the reason why it had to scrap all bids for the six-month bills was that such an action could have been misinterpreted as a signal for tightening of the monetary policy. “With inflation under control there is hardly any justification for tightening the policy,” said a senior SBP official.

“Besides, an increase in six-month T-bills yield automatically pushes up export refinance rate...and that is something the central bank or the government does not want to,” said the official.

Dr Shahida Wizarat said the recent upward adjustment in T- bill rates signalled to banks to improve the rates of return on deposits. She said it also showed that the central bank wanted to save the banks from taking further hit on their profitability.

In saying so she implied that the banks should not take the 38 basis points increase in six-month T-bills rate last month as a signal that the SBP was bent upon tightening its monetary policy leading to an across-the-board increase in interest rates. Last month, the SBP did increase the six-month T-bills cut-off from 1.27 per cent to 1.65 per cent after all the weighted average rate of return on deposits of all the banks combined fell to 1.90 per cent at end-June. The T-bills rate was increased also because a gradual decline in the rate in the backdrop of rising liquidity was taking a toll on interest incomes of the banks. Banks have been awash with liquidity on the back of rising home remittances and they are yet to find ways to use surplus liquidity gainfully.

LIST OF LOSERS: Senior bankers say long is the list of the banks that came up with expensive bids for six-month bills on Wednesday but failed to secure an increase in the cut-off yield from the State Bank. Citibank had perhaps read the SBP mood more cautiously than others so it priced its first two bids of Rs700 million and Rs200 million at rates on which the cut-off yield worked out to be 1.73 and 1.78 per cent, respectively. Equally cautious was National Bank that demanded 1.73 and 1.76 per cent yield on its first two bids of Rs2 billion each.