November 22, 2007	Thursday	Ziqa’ad 11, 1428

KARACHI, Nov 21: The State Bank on Wednesday increased cut-off yield on the bench mark 6-month Treasury bills but failed to raise liquidity even less than one third of its target.

The prevailing higher interest rates in the money market forced the State Bank to increase T-bills rates to attract liquidity but the banks preferred to keep a low participation in the auction.

The SBP set Rs50 billion as pre-auction target, while it received bids worth Rs16.126bn and picked up Rs11.458 billion.

The cut-off yield on 6-month T-bills rose to 9.2084 per cent from 9.1426 per cent while the SBP picked up only Rs95.6 million for this period.

The 12-month T-bills cut-off yield was slightly inched up to 9.3990 per cent and the SBP raised Rs11.363 billion.

The tight money market, which compelled banks to borrow Rs29.49 billion in the last two sessions, could not offer much to the SBP. However, the banks felt some relief when the overnight rate slightly slipped to 9.75 per cent. The slight easiness was because of anticipation of expected massive liquidity of Rs57.573 billion on Thursday.

Dealers said the SBP would come again with Open Market Operation to siphon off the scheduled inflows of Rs57.573 billion.

The latest increase in the cut-off yield of 6-month T-bills was the impact of prevailing tight liquidity position of the market. This was the outcome of the tight monetary policy, while the dealers and analysts said the latest increase would put more pressure on interest rate.

“Slight increase has no implications and should not be considered as a signal from the central bank,” said Mohammad Suhail, director Broking at JS company.

However, some analysts said pressure was mounting on the interest rate. This is also reflected from the reports that lending rates have gone up very high hovering in the range of 12-18 per cent.

“This high interest is a true reflection of higher inflation despite all efforts from the central bank,” said an analyst. The SBP has been maintaining tight monetary policy discouraging banks against higher credit-off take by the private sector. The private sector significantly slashed its borrowing in the wake of higher interest rate.

However, the food inflation was still beyond control, which kept the interest rate much higher than the target of 6.5 per cent set for the year 2007-08.

“I believe that this year ‘monetary inflation’ would not take place but the food and oil prices would keep the inflation high disrupting the SBP strategy to target inflation through monetary policy,” said the analyst.