KARACHI, May 29: Most banks are reluctant to invest money in three-month treasury bills after realizing that the State Bank wants to keep interest rate stable.
The banks reluctance was evident on Wednesday auction of T-bills in which only one out of seven primary dealers submitted bids for three-month bills. (Primary dealers are the banks that sell government securities in the market on behalf of the SBP.)
Senior bankers said state-run National Bank was the only primary dealer to buy three-month T-bills from the central bank. The SBP sold Rs8.1 billion bills to NBP at a maximum yield of 5.81 per cent and siphoned off Rs7.99 billion. Sources close to NBP said the bank had bought the bills for some banks that are not primary dealers and for some public sector entities that are its clients. They said the main buyers of the bills were from the petroleum sector. The sources said the reason why some small non-primary dealer banks and petroleum companies went for three -month T-bills amidst signals of interest rate stability is that their cash-flow pattern demanded so.
All primary dealers minus NBP i.e. (i) Habib Bank (ii) Union Bank (iii) Citibank (iv) American Express (v) ABN Amro and (vi) Standard Chartered showed no interest in three-month T-bills. No official word was available about what stopped them from making investment in three-month bills but sources in these banks said they had little interest in three-month paper because they knew the interest rate would remain stable.
“The SBP has been constantly sending signals about interest rates stability. So why should we or our clients invest in low -yielding paper for three months?” asked treasurer of one of these banks. That the central bank has been following a stable monetary policy since mid-February when it had last lowered its discount rate. Since then it has sent several signals to the market regarding its interest rate policy by keeping treasury bills rates unchanged.
Bankers say they believe that since the stable interest rate policy seems to last for a few more months investment in three —month bills would block their surplus funds at a low interest rate. “We can rather earn more on six-month and one-year bills,” said treasurer of one of the primary dealers when asked where on earth the banks would invest surplus funds at a time when the private sector credit is not picking up.
The 5.81 per cent cut-off on three-month bills announced on Wednesday is exactly the same at which the central bank has been selling these bills for some months. Senior bankers said the State Bank also kept unchanged the six-month and one-year cut-offs at 6.43 per cent and 6.99 per cent on Wednesday.
They said the central bank sold Rs800 million six-month bills at 6.43 per cent to three primary dealers and suck in Rs775 million from the system. The State Bank also sold Rs400 million one-year bills at 6.99 per cent to two primary dealers thus draining out Rs374 million from the system. The primary dealers that bought six-month bills were (i) Habib Bank (Rs500m); American Express (Rs100m) and (iii) Citibank (Rs200m). Those who bought one-year bills were (i) National Bank (Rs300m) and Union Bank (Rs100m).