KARACHI, June 23: The State Bank on Wednesday rejected all bids for six-month treasury bills to keep their yields from rising too sharply. The central bank had set Rs50 billion target for the sale of six-month bills. The auction attracted Rs41.6 billion bids but the SBP rejected all of them without assigning any reason.

Senior bankers said the central bank had to scrap the bids to avoid increasing T-bills yields by a big margin. They said the banks had offered bids between 2.68-3.98 per cent against the previously set weighted average yield of 2.23 per cent.

Had the SBP accepted the bids it would have to increase the yield by a very big margin. "That was something the central bank wanted to avoid," said treasurer of a local bank.

The SBP avoided a big increase in the T-bills yields because it would have pushed up export finance rate for July by more than half a percentage point besides signalling to the market that interest rates are speeding up.

But this does not mean that the SBP can avoid an inevitable increase in T-bills yields in future as well. "The central bank only wants that the yields move up gradually," said treasurer of another local bank. Since the middle of February this year SBP started allowing a gradual hike in T-bills yields and is likely to allow further hikes also in phases.