KARACHI: In its first auction of the long-term Pakistan Investment Bonds (PIBs) since the rate hike of 150 basis points on May 20, the State Bank of Pakistan (SBP) raised Rs125 billion against total bids worth Rs464.8bn while rejecting bids asking for higher returns.

The SBP had set a target of Rs100bn.

Bankers said they were still cautious over the interest hike but the SBP accepted bids with lower rates. The current discount rate is 12.25 per cent. In the short-term Treasury Bills, the government has struggled to attract interest from banks in any tenors longer than three months, despite massive rate hike.

The SBP accepted Rs56.8bn for three-year instruments with cut-off yield of 13.69pc whereas the yield for five-year PIBs was 13.80pc and the amount accepted was Rs26.4bn.

However, the cut-off yield dropped to 13.60pc for 10-year bonds indicating that the long-term interest rate is likely to be dropped. The amount realised was Rs18.7bn.

“I believe that SBP has given us very good signs for the stability of interest rate by keeping the yield on 10-year PIBs less than five-year PIBs,” said a banker who deals with PIBs.

Bankers said the auction on Wednesday also indicated that SBP was not willing to increase the interest rate more than 14pc.

“There is still chance for increase in the interest rate but banks believe it will not cross 14pc and our estimate is supported by the SBP’s rejection of all bids over 14pc” said the banker.

“The next T-bill auction is crucial and will indicate the future trend of interest rate,” said the banker.

Published in Dawn, May 30th, 2019