KARACHI, Aug 15: The cut-off yield on benchmark six-month treasury bills on Wednesday increased in the second auction in a row reflecting the long-term impact of the higher discount rate.

The State Bank in its new monetary policy had unexpectedly increased the discount rate from 9.5pc to 10 per cent effective August 1, 2007, but the latest hike in the T-bills rates was in line with the market expectations, money market dealers said.

The rate of six-month paper rose to 9.14pc from 9.09pc and the experts were expecting further hike in its yield. The 12-month T-bills yield slightly rose to 9.4pc, from 9.39pc.

“The printing of currency notes has already been causing inflation and the further hike in the interest rates would result in cost-push inflation,” said an analyst.

The official data showed that the average lending rate during 2006-07 was 11.04 per cent as compared to 9.79pc in 2005-06.

Experts said that the lending rates could go further higher. However, some analysts viewed it differently saying that in the presence of huge liquidity in the banking system, there was a little chance of any big jump in the lending rate.

“The rising yields on T-bills during the last two auctions have indicated that the lending rates are set to rise further,” said Amir Saleem, a brokerage house analyst.

A number of analysts had predicted that the lending rates would go up by 1 to 1.5 per cent after jacking of discount rate by the SBP, which means that the average lending rate would reach to 12 to 12.5pc by end of the current fiscal.

The SBP on Wednesday picked up Rs22.943 billion for 12-month papers, Rs1.912 billion for six-months and Rs5.877 billion for three-month T-bills.

Analysts said that the economy would see inflationary pressure owing to excess of liquidity and higher interest rates.

A dealer said that the money market would receive Rs64 billion this week as a result of maturity of treasury bills much higher than the outflow of T-bills auction.