KARACHI, Nov 23: The State Bank on Wednesday raised the cut-off yield on benchmark six-month treasury bills, signalling an interest rates hike in future.

The SBP held an auction of T-bills and picked up Rs61.945 billion, much less than the target of Rs90 billion. A significant change was the rise in the six-month T-bills cut-off yield which was pushed up by 15 basis points.

However, the SBP picked up the minimum amount, just Rs768 million, for six months at the rate of 8.3910 per cent. The highest amount of Rs53.102 billion was collected for 12-month T-bills at a cut-off yield of 8.7907 per cent. The central bank raised Rs3.337 billion for three-month T-bills at a cut-off yield of 8.1 per cent.

The SBP had set a target of Rs90 billion for the T-bills auction but remained far behind despite huge inflows of Rs90 billion scheduled for the same day.

Analysts believe that the central bank would conduct open market operations (OMO) to siphon off the excess liquidity from the market. They said the increase in six-month T-bills could be taken as a message for interest rates increase in the coming days. They observe that the higher inflation has compelled the SBP to raise the interest rate regime.

The change in the cut-off yield of T-bills came at least after two months. If the cut-off yield is further increased in next auctions, then the interest rate scenario would be clear,” said an analyst.

The board meeting of the IMF held a couple of days ago suggested that the interest rates should be higher in the wake of rising inflation. Inflation in October stood at 8.27 per cent, and the SBP governor has said that it would remain at eight per cent for the fiscal year 2005-06.

The immediate impact of the hike in six-month T-bills would be felt in the export refinance rate, already came close to a double digit. The year 2004-05 witnessed a massive increase in export refinance which was just two per cent on June 2004, excluding banks’ charges of 1.5 per cent.