11 November 2004	Thursday	27 Ramazan 1425

KARACHI, Nov 10: The State Bank on Wednesday raised the weighted average yield on six-month treasury bills by 54 basis points to 3.73 per cent. This is bound to increase the export refinance rate for December by half a percentage point to 3.5 per cent pushing up the mark-up on export finance to 5 per cent from 4.5 per cent in November.

The central bank said it sold Rs2.45 billion six-month bills at a weighted average yield of 3.73 per, up from the previous level of 3.19 per cent. It said the auction of treasury bills had generated demand worth Rs4.1 billion but it accepted bids worth Rs2.45 billion and rejected the rest. The central bank had set the sale target at Rs5 billion at the time of announcing the auction.

That the SBP has raised the six-month T-bills by more than half a percentage point in one go without raising a substantial debt through them reinforces the view that it would increase the T-bills rate much faster during this quarter than in the previous quarter. The central bank seems set to do this to contain the rising inflation that shot up to 9 per cent year-on-year in September. The target set for inflation during this fiscal year is 5 per cent. But the central bank said recently that it would exceed the target "if the shortfall in supply of commodities persists."

Senior bankers said the inter-bank market was tight after the announcement of the result of T-bills auction adding that overnight call rate ranged between 6.5 and 7 per cent. But banks had not to make overnight borrowing from the SBP's discount window. They said the hiking of the T-bills yield would have an immediate impact on the auction of long-term Pakistan Investment Bonds on Thursday adding that the yields on the bonds may rise. Besides, it would increase the SBP's export refinance rate for the month of December. SBP uses the weighted average yield on six-month bills of the previous month to fix its export refinance rate for the following month.