KARACHI, Feb 4: Projection works — and it pays too: The State Bank did realize this on Tuesday when the banks did not go as crazy for buying treasury bills as in the past — thanks largely to an SBP monetary policy statement issued last week. But most banks did buy enough bills to put surplus liquidity to a gainful use. They bought Rs44.6 billion six-month bills at a cut-off yield of 3.36 per cent down 58 basis points from the previous level of 3.94 per cent.

“We were anticipating a much sharper fall in the T-bills yield because of the massive liquidity available in the market,” said a central banker. “But luckily the banks did not panic as much as they had in the past.”

The SBP official linked it to the issuance of the SBP monetary policy projections for January-July 2003 released last week. This first-of-its-kind statement had indicated that the central bank would not go for more easing of monetary policy unless something unusual calls for it.

President of state-run Habib Bank Zakir Mahmood had told Dawn a couple of days ago that the policy statement issued by the SBP would minimize uncertainty prevailing in the money market. “It will help the banks and the businesses grow more efficient by making their planning process a bit easier,” Mahmood had said.

“The SBP monetary policy projections have undoubtedly dampened the sort of over-excitement seen earlier in TBs auctions,” said the chief financial officer of another local bank. “But despite that the yield on TBs will drop further as the banks are yet to find big avenues of lending though some of them have diversified their credit portfolio.” A number of treasurers reached by Dawn over telephone said the intermittent acts of terrorism hitting the country was forcing many potential investors to wait and see.

“That in turn becomes a hurdle in the desired growth in the demand for private sector credit,” said treasurer of a big local bank. Bankers report a significant improvement in private sector credit disbursement but they say the disbursement volumes could have been much larger had law and order not been so deteriorated.

Bankers say the fall of 58 basis points in the cut-off yield of six-month bills on Tuesday keeps the yield curve on the slide but the new cut-off is an improvement over the secondary market rates. “The six-month bills were trading between 2.50-2.75 per cent in the secondary market till Monday after hitting a historic low of 2.25 per cent some days ago,” explained a local treasurer. “The cut-off of 3.36 per cent is an indication that the sentiment has changed.”

That the sentiment has changed is also evident from the fact that the Tuesday auction did generate total bids of Rs83 billion as against a sale target of Rs 45 billion but the pricing was not too bad. “Of course a big chunk of the Rs83 billion bids had no real backing of surplus liquidity but what is encouraging is that the banks dared to price the bids at reasonable levels,” said a central banker.

Out of this the SBP accepted Rs44.6 billion bids — and mopped up Rs43.9 billion from the inter-bank market still leaving some liquidity to help banks finance withdrawals related to Eidul Azha. Bankers estimate that after the settlement of the T-bills auction on Thursday the market would still have at least Rs5 billion surplus cash.