KARACHI: The cut-off yields on treasury bills remained flat in a crucial auction on Wednesday despite another 100 basis points hike in the policy rate by the State Bank of Pakistan (SBP) on Tuesday making the total increase of 250bps to 9.75pc within a short span of 25 days.

The previous auction held on Dec 1 had seen a quick reaction and the cut-off yields in all three tenures were increased while the highest jump of 229bps was noted in three-month papers.

The latest auction shows the yields were almost flat for all tenures while the highest bids were offered for the three-month T-bills.

The SBP in its Monetary Policy Statement on Tuesday said that the sharp increase in cut-off yields in the last T-bill auction was unwarranted.

The government remained short of the target as it could borrow a total of Rs1.37 trillion (including Rs94.5bn through non-competitive bids) against the target of Rs1.4tr while the maturity amounted to Rs1.5tr.

For three-month tenor, the government borrowed Rs805bn at 10.78pc while for six-month it raised Rs385bn at 11.5pc and for 12-month it picked Rs95bn at 11.51pc.

The rising interest rate is making borrowing costlier for the government as well as the private sector. The strategy for a higher interest rate is to counter the sharp increase in inflation.

“Due to year-end and ahead of the resumption of IMF programme, today’s T-bill auction was important for interest rate direction for local markets. The government had set auction target at Rs1.4tr, which made it even more important at a time when the interest rates are rising and borrowing from the SBP is restricted due to IMF conditions,” said Mohammad Sohail, CEO of Topline Securities.

The next T-bill auction is scheduled for Dec 29 to borrow Rs1.2tr against a maturity amount of Rs1.1tr.

The SBP governor in an interview has assured the market that the interest rate would not go up to 13pc in the future and would remain unchanged in the near term. However, the bids of Rs1,385bn for three-month papers indicate that the market did not heed the assurance.

The government rejected all bids for Pakistan Investment Bonds for semi-annual auction while it raised Rs128bn through quarterly auctions.

Dollar at new peak

Meanwhile, the 10-paisa gain tossed the US dollar to yet another record high of Rs177.98 against the rupee in the interbank market on Wednesday.

Currency market experts said the demand is still high for the greenback which means the price would remain on the higher side in the coming days.

So far the US dollar has risen by 13pc in the current fiscal year as economic managers have failed to take any concrete measure to control the ever-increasing dollar prices. However, the central bank believes the free-floating exchange rate is the right response against the higher current account deficit which would be 4pc of GDP for the FY22.

Published in Dawn, December 16th, 2021

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