KARACHI, March 28: The State Bank on Wednesday raised the cut-off yields on treasury bills of all maturities signalling further tightening of the monetary policy. The market received the information of high cut-off yields as contradictory to the State Bank’s stand for keeping the interest rates unchanged.

The cut-off yield on benchmark six-month paper was moved up to 8.8579pc from 8.8142pc, for three-month papers to 8.6869pc from 8.6417pc and for 12-month T-bills to 9.0523pc from 9.0165pc in the auction.SBP Governor Dr Shamshad Akhtar on Tuesday said that interest rates would probably remain unchanged as ‘inflationary’ pressures were easing.

However, market experts said that the hike in T-bills’ yields was an indication of further tightening of monetary policy.

“The higher return on T-bills would push the interest rates higher making the borrowing costly. It will reduce the flow of credit to the private sector but the costlier money is itself inflationary,” said Tariq Abbas, an analyst.

He added that very high supply of currency had already pushed the monetary growth above the previous year’s rate.The SBP sold Rs3.88 billion of six-month bills, Rs5.15 billion of 3-month and Rs36.23 billion of 12-month treasury bills. The SBP received total bids of Rs61.14 billion against a target of Rs45 billion. It picked up Rs45.259bn.

Bankers and analysts said that further tightening of monetary policy would be counterproductive and prone to high inflation.

“The SBP tried to check inflation through tightening of monetary policy but the SBP governor admitted that the inflation target could not be achieved this year and it would be around 7.5 per cent instead of 6.5 per cent,” said a banker.

He was of the view that the SBP was in difficult situation finding it harder to check inflation without further tightening of monetary policy.

“The tight monetary policy has already slashed the credit growth to private sector by 27 per cent but the inflation is still high which means supply of money to the system is high causing inflation,” said the banker.

Bankers said further increase in the interest rates would hamper the economic activities in the country and the investors would prefer to keep money in deposits instead of taking risk and pain to increase their income.