KARACHI, Sept 27: Banks avoided investing in longer tenure treasury bills on Wednesday fearing that high inflationary figures of August could further push up the interest rates.
The State Bank of Pakistan in a T-bills auction failed to suck up the liquidity inflows through the maturity of previously sold T-bills.
It could raise only Rs18.650 billion against the auction target of Rs50 billion. The market would receive inflows of over Rs52 billion on Thursday, the settlement day of T-bills auction.
However, the banks participated in the auction did not come out to buy whole lot offered by the SBP and bids were in the tune of Rs26.750 billion.
Dealers said the high inflation in August was the real cause for cautious approach adopted by the banks. They feared the rising inflation could result in further hike in T-bills rates which was the main reason and banks mostly restricted to invest mostly in the three-month papers.
Banks asked for higher rate on six-month and 12-month T-bills which the SBP refused and left the liquidity in the market.
Dealers said the Consumer Price Index (CPI) registered a growth of 8.9 per cent in August thus creating hopes for the banks that T-bill rates could be changed.
“The inflation in September could be the real test for the State Bank. If the inflation goes further high, the interest rates would go up and t-bills rates will be adjusted upward,” said an analyst.
The banks which look for higher return by investing into the risk-free T-bills still earning high profit as the banking spread is above 7 per cent.
The State Bank picked up Rs10.883 billion for three-month, Rs3.687 billion for six-month and Rs3.395 billion for 12-month T-bills.
The market would remain under pressure of very high liquidity presence as about Rs34.3 billion would be available for the use of the banking system.
Analysts said that the SBP would come up with Open Market Operations (OMOs) to siphon off the excess liquidity. The tight monetary policy does not allow the SBP to leave the banks floating with excess liquidity which could ultimately cause inflationary impact.
The dealers said the sudden impact would appear on Thursday when the money rates would touch lower level and could remain around 6 to 7 per cent.
