KARACHI: The State Bank of Pakistan (SBP) received bids worth Rs28.124 billion for T-bills on Wednesday in an auction that the government was looking to raise Rs100bn from. Almost all the bids came in three-month tenors as banks remained reluctant to venture anywhere beyond that in their appetite for government debt.

The State Bank spokesman told Dawn that the thin participation and reluctance to commit beyond three months could be due to banks’ expectation of further interest rate increases in coming months. “Given the target, relatively lower participation and concentration in three months tenor paper probably reflects the expectation about the interest rates”, he said.

The pattern of bidding released by the SBP shows that only one bid was received for six-month paper, and no bids were received for the 12-month bills. The cut-off yield for the three month bills remained at 10.3 per cent whereas the single bid received for six-month tenor was also rejected in the auction result released by the central bank.

The pattern of bids being concentrated in short term paper has refused to break all year. Whereas, on the other hand, SBP has received no successfull bids for the 12-month treasury bills since October, 2017 despite raising the policy rate from 5.75pc in January to 10pc in December.

Furthermore, in the T-bill auction held on Dec 5, the government borrowed two trillion rupees from the market at an average yield of around 10.3pc – mostly in the three and six month tenors while no bids were received for the 12-month bills.

The SBP’s contractionary monetary policy following inflationary pressures coupled with the rupee depreciation and widening fiscal and current account deficits have made way for speculation in the money markets vis-à-vis movements in the policy rate.

Published in Dawn, December 20th, 2018