KARACHI, March 30: Average yield on six-month treasury bills went up to 5.51 per cent on Wednesday as the State Bank sold more than the targeted amount of the bills, result of the auction showed. The central bank increased weighted average yield on six-month bills by 33 basis points — from 5.18 per cent at the start of this month to 5.51 per cent while selling Rs22.5 billion worth of the bills against the target of Rs10 billion.
The rate-hike is in continuation of the SBP policy to tighten interest rates to fight soaring inflation in a manner that it does not impede economic growth. Inflation during July-February 2004-05 averaged around 8.9 per cent against the revised full fiscal year target of 7 per cent.
The most immediate impact of this increase will be on export finance rate that should rise to 7 per cent for April 2005, if the SBP makes no change in the way it determines its export refinance rate.
The central bank keeps the refinance rate almost at par with average yield on six-month bills in the previous month and banks charge a 1.5 percentage point spread over this rate while pricing loans for eligible exporters under the State Bank’s Export Refinance Scheme.
The SBP increased export refinance rate by half a percentage point to 4.5 per cent for March 2005 thus allowing banks to charge up to 6pc markup on export loans. If the central bank strictly sticks to the procedure of passing on the increase in the average yield on six-month bills onto the export refinance rate, the rate should rise to 5.5pc in April making it possible for banks to charge up to 7pc markup from exporters. But if it refrains from making a full percentage point increase in the refinance rate in one go to keep exporters from its negative impact, it may raise the rate to 5pc. In that case, exporters will get export loans at a maximum markup of 6.5pc in April 2005.
Exporters community has been demanding that the central bank should stop passing on the increase in six-month T-bill rate onto export refinance rate -— a practice it had started on the insistence of the IMF to eliminate what Pakistan and the Fund viewed as interest rate subsidy.
But the SBP may not heed to their demand, Dawn inquiries reveal. The best the central bank can do is to raise export refinance rate by half a percentage point for April instead of a full percentage point.
