KARACHI, July 5: The first auction of treasury bills of the current fiscal on Wednesday attracted huge response from the banks, but the rates of return remained flat reflecting that the SBP would continue tight monetary stance.

The central bank mopped up Rs79.675 billion through auction of 3-month, 6-month and 12-month T-bills while the bids offered were in the tune of Rs96.375 billion.No change in the yield of benchmark 6-month T-bills was announced and comparatively a small amount Rs5.700bn was raised. However, cut-off yields for 3-montn and 12-month were also unchanged but a huge amount of Rs44.100bn and Rs29.287bn was picked up respectively.

The cut-off yields for 3-, 6- and 12-month T-bills were 8.32pc, 8.48pc and 8.79pc respectively. The pre-auction target was Rs60 billion.

Being the first auction of T-bills after the announcement of credit plan for 2006-07, the banks decided to participate without insisting for higher return on their investments. In the previous auction the banks refrained from investing in T-bills signaling for higher interest rates but the SBP took strong note of the situation leaving the market liquid which sharply pushed down the inter-bank money rates at the rock bottom levels.

Though the monetary policy is yet to be announced, the State Bank in its credit plan indicated tight monetary policy for second consecutive year. Though the monetary targets are high but the SBP governor expressed her will to check the monetary expansion.Dealers said that the banks took long positions and invested Rs29.9 billion in 12-month T-bills. The banks had been avoiding investing in 12-month papers anticipating an increase in the interest rate and their hopes were attached with the new fiscal year.

Some bankers were of the view that the monetary policy which was expected in couple of weeks would not bring any change in interest rates.They said that the discount rate would remain at 9pc. They said the credit lending rates to private sector had gone up significantly due to higher inflation prevailed above 8pc during 2005-06. The average lending rates for all banks were in double digits while the fresh lending rates were in the range of 12 to 16pc.

However, the SBP showed its determination to keep the inflation at 6.5pc during the fiscal. Bankers said that the SBP would keep interest rates unchanged.