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SBP cuts T-bill rates by 50bps

October 04, 2012


KARACHI, Oct 3: The State Bank on Wednesday slashed the rates of treasury bills by 50 basis points but raised much less amount than the offers made by the primary dealers (banks).

The benchmark six months treasury bills rate was reduced by 47 basis points to 9.758 per cent. Highest cut was introduced in three months paper which fell to 9.729 per cent after a cut of 50 basis points.

The 12-month treasury bills witnessed a slash of 49 basis points.

However, the State Bank sold much less than the market anticipation mainly because the rates were substantially dropped.

The bank picked up a total Rs180 billion while the offered amount was Rs562 billion.

The 50 basis point cut in the treasury bills was taken as an indication by the market that policy interest rate could see a cut in the next monetary policy to be announced on Oct 5.

The third consecutive fall in the consumer price index that represents the main inflation has created a hope for a cut in the discount rate. The September inflation was 8.79 per cent giving hope that the current fiscal year might see a single digit average inflation at the end of the year.

Market treasury bills are indicator of the government borrowing while rates of bills indicate the trend of policy interest rate.

Analysts have started flooding reports about possible policy rate cut with anticipation about the fall in the profitability of the banks.

They said the investors were worried due to expected cut in the discount rate that may hurt banks’ growth of profits.

Since July 2011 the interest rates were slashed by 350 basis points that have already hit the profit of the banking sector.

“If the discount rate is cut by 50 basis points, 2013 estimated profits of our sample banks will rise by 3 per cent now compared to earlier projection of 6 per cent,” said a report of Topline Research.

Banks in Pakistan have been earning profits for last five years despite massive jolt in the global banking industry which failed many giant banks.

Analysts said the drop in the profits of the banks would not fail banks in Pakistan.