KARACHI, Nov 21: The slight slip of inflation last month gave hope that the interest rates would remain stable and the bankers were found ready to invest heavily to buy Treasury bills of one year tenure on Wednesday sighting no change in T-bills rates, said bankers and analysts.

Bankers said they did not expect that the cut-off yield of T-bills of different maturities would be increased as the interest rate scenario looked stable.

The State Bank has announced to sell Rs64 billion T-bills of 3-month, 6-month and 12-month tenures. The bankers said the SBP might reach the target as the same amount of inflows is scheduled on the settlement day- Thursday.

“The recent declines in the CPI and core inflation have given message that there was no need to increase the interest rate or increase the cut-off yield of T-bills,” said a banker.

According to the SBP monthly inflation monitor of October 2006, the CPI slipped by 6 basis points to 8.1 per cent and core inflation (non-food non-oil) declined to 5.7 per cent from 7.8 per cent of October 2005.

“The policymakers believe that the food and oil prices are out of their control and minus these two heavy weights the core inflation basket showed stability in the monetary system,” said an analyst.

Any fluctuation in the rates of cut-off yields impact the interest rate directly. The State Bank had slightly enhanced the 6-month T-bills in the last auction but the analysts said it was a technical correction.

“There may be some upward correction in the cut-off yield of three months in the auction but it would not impact upon the overall interest rate scenario,” said the banker.

He said that heavy investment in 12-month T-bills would reflect the confidence of the banking sector over the stability of interest rate.

“The SBP would continue with the currently prevailing tight monetary policy, which helped it to keep pressure on inflation for decline,” said the banker.

However, a number of analysts said that inflation might see some upward movement if the oil prices go up and the country faces shortage of wheat and sugarcane.

“These two food items alone are enough to push the inflation up which is just above 8 per cent and the report about shortages are in the air,” he said.