KARACHI: The government on Wednesday cut the yields on treasury bills (T-bills) by up to 100 basis points across different tenors, strengthening expectations for a significant softening of monetary policy in the upcoming review on Dec 16.
The government remained within its auction target while the investors’ bids reached Rs1.928 trillion, indicating banks’ eagerness to park their maximum liquidity in the risk-free government securities.
The investors’ bids were almost equal for short-term 3-month and long-term 12-month bonds; however, the government preferred to raise the maximum for a longer tenor.
The government raised Rs1.256tr against the target of Rs1.2tr while the total bids for the auction were Rs1.9tr.
Banks improve ADR to about 48pc
The biggest cut of 100bps was introduced for the three-month papers to 11.99pc from 12.99pc, followed by 89bps and 5bps for six- and 12-month tenors to 11.99pc and 12.3pc, respectively. The government raised Rs105.6bn for six months and Rs322bn for three-month T-bills.
The slashing of return on T-bills is important since the State Bank of Pakistan’s Monetary Policy Committee meeting is scheduled for Dec 16 amid market expectations of up to 200bps cut in the interest rate. The current policy rate is 15pc.
The government has been trying to remain within the auction target, but the increasing spending amid revenue shortfalls compels it to borrow more from the banking system.
The SBP data showed that the government retired Rs1.57tr in the first five months of FY25 against a net borrowing of Rs3.4tr during the same period last year.
The government borrowed just Rs1.2tr against the maturing amount of Rs2.03tr to reduce the fiscal deficit and remain within the limits committed with the International Monetary Fund.
From Dec 11 to Feb 19, 2025, the government has planned to raise Rs3.8tr in T-bills auctions against the maturing amount of Rs5.568tr. The gap could be bridged through Rs2.7tr, credited to the government account by the SBP as profit.
Tax on banks
Meanwhile, banks look eager to lend maximum liquidity before Dec 31 to avoid incremental tax if the advance-to-deposit ratio remains below 50pc.
A report by Arif Habib Ltd said that the banks have succeeded in taking their ADR to 47.8pc from 38.4pc in August. Banks hope they will achieve the threshold before the deadline.
However, the media reports suggest that the government plans to impose the tax by calculating the average annual ADR. Bankers said the banks would have to pay the tax if the government calculates annual average ADR.
Published in Dawn, December 12th, 2024
