Cut-off yields on T-bills increased by up to 229bps

Published December 3, 2021
Stacks of Pakistani rupee notes. — AFP/File
Stacks of Pakistani rupee notes. — AFP/File

KARACHI: Cut-off yields on market treasury bills were increased by up to 229 basis points in the first auction held on Wednesday after the interest rate hike on Nov 19.

The State Bank of Pakistan (SBP) on Thursday announced that the government raised Rs504.33 billion through T-bills auction against the target of Rs740bn. It also raised Rs22.5bn through non-competitive bids.

The big jump of 229bps in cut-off yields was expected because the central bank had already raised its policy rate by 1.5 per cent to 8.75pc, which initially jolted the market, but the double-digit (11.5pc) rise in CPI-based inflation for November justified the major hike in the interest rate.

The major hike in the cut-off yields took place after over a year. The SBP had cut the interest rate from 13.25pc to 7pc within three months after Covid emergency in March 2020 and held it unchanged for over a year to support the economy besides injecting in massive liquidity to achieve growth.

Market experts see further hike in the interest rate due to mounting inflationary pressures.

The SBP reported that the cut-off yield for three-month T-bills was increased by 229bps to 10.79pc. The government raised Rs338.33bn for this tenor.

The six-month T-bills yield was incre­ased to 11.5pc while the government raised Rs110.9bn. The cut-off yield for 12-month papers was increased to 11.51pc and Rs55bn was raised.

However, some economists and analysts believe that the decision resulted into now increasing inflation as the currency in circulation is more than 25pc of the total supply. During the current fiscal year, the benchmark six-month T-bills rate was increased by 397bps from 7.53pc on July 14 to 11.50pc on Wednesday.Similarly, the rate on three-month T-bills was increased by 354bps to 10.79pc during the current fiscal year.

The government also raised Rs28.8bn through auction of Pakistan Investment Bonds as it raised Rs11.75bn for two years and Rs10bn for five-year while Rs7.111bn was raised as non-competitive bids.

Meanwhile, the SBP clarified in a late-night message in response to some media reports that the date of the next MPC is not being brought forward. The MPC meeting, it added, is scheduled to take place on Dec 14 — as announced previously.

Published in Dawn, December 3rd, 2021

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