KARACHI, Jan 23: The State Bank on Wednesday cut the weighted average yield on treasury bills by 1.39-1.51 per cent in line with a one per cent cut in its discount rate announced on Tuesday.
The twin steps are aimed at reinforcing earlier signals about easing of the monetary policy to enliven the sagging economy. A senior central banker said the banks should translate the cut in discount and T-bills rates into lower lending rates and help the private sector accelerate investment and production activities.
The official who declined to be named said since the central bank has made very liberal cuts in its discount and T-bills rate since July this year banks “must now see to it that there is no delay on their part to respond positively.”
The SBP on Wednesday slashed the weighted average yield by 1.51 per cent to 6.13 per cent on three-month T-bills and by 1.42 per cent to 6.34 per cent on six-month T-bills. The central bank cut the weighted average yield one-year T-bills by 1.39 per cent to 6.81 per cent.
Since July the State Bank has cut the discount rate by five per centage points to 9 per cent: It has also cut the weighted average yield by 6 per cent on three-month T-bills and by 6.21 per cent on six-month T-bills. The central bank has lowered the yield on one-year T-bills by 5.17 per cent.
But despite such a huge rate-cut banks have so far not made any significant cut in their weighted average lending rates. In fact their weighted average lending rate has risen from 13.74 per cent at end-June 2001 to 14.10 per cent at the end of November.
Top bankers say they are now moving fast towards making a cut in their lending rates. “We will very soon reduce our lending rates significantly,” said head of a large local bank without disclosing when and by what percentage points.
The sharp reduction in the weighted average yield of treasury bills helped the central bank to mop up Rs11.74 billion from the inter-bank market against the target of Rs8.5 billion. The central bank raised about Rs2.17 billion through sale of three- month T-bills; about Rs4.85 billion through six-month T-bills and Rs4.73 billion through one-year T-bills.
The SBP announced the cut-off yield at 6.16 per cent for three months; at 6.58 per cent for six months and at 6.89 per cent for one year. In other words the difference between cut-off yield and weighted average yield was only 3 basis points in case of three-month bills; 24bps in six-month bills and 8bps in one-year bills.
Senior bankers said the sharp fall in the average yield of T- bills made inter-bank lending cheaper: three-month and six-month funds were available at 5.90 per cent and 6.25 per cent respectively whereas one-year lending was being priced at 6.70 per cent towards the end of the day. Bankers said the market had surplus liquidity of no less than Rs15 billion with call rates lying flat at 1 per cent.
“Even after the outflow of Rs11.74 billion from the system on Thursday, the market would remain sufficiently surplus,” said treasurer of a local bank adding that an inflow of Rs6 billion was also due the same day.
Bankers said the nosediving of the T-bills yield had hit hard large local and foreign banks with enough surplus liquidity but it had helped smaller banks with little liquidity to borrow money at cheaper rates. “We were not expecting such a major cut in T- bills yield...we had to lend at very cheap rates today,” lamented treasurer of a major bank.