KARACHI, Oct 31: The State Bank on Wednesday cut the treasury bills cut-offs by 1.64-1.81 per cent in a follow-up of a two per cent cut in discount rates on October 20. This is the third cut in the treasury bills yield within a month. Earlier on October 3 and October 17 the SBP had made modest cuts in the T-bills yield.
The SBP slashed the cut-off yield from 10.28 per cent to 8.50 per cent on six-treasury bills and from 10.74 per cent to 9.10 per cent on one-year bills: it also reduced the maximum yield on three-month bills from 10 to 8.19 per cent.
“The lowering of the T-bills cut-offs reinforces the earlier signal of SBP that it wants to follow an expansionary monetary policy,” said a senior official of the SBP.
The SBP started easing off its monetary policy in July when it reduced its discount rate from 14 to 13 per cent. In August it made another one per cent cut in the discount rate bringing it from 13 to 12 per cent. And on October 20 the central bank cut the discount rate by a big 2 percentage points to 10 per cent.
Senior bankers said the central bank lowered the T-bills cut- offs at the regular auction of the bills on Wednesday in which it sucked in Rs9.2 billion from the market.
The SBP said it sold Rs9.9 billion worth of bills to realize Rs9.2 billion. It mopped up Rs6.5 billion by selling one year bills and Rs2.4 billion by selling six month bills. The central bank also siphoned off more than Rs294 million through sale of three-month bills.
Bankers say the latest cut in the T-bills yield reinforces the earlier indications of easing off of the monetary policy that is aimed at kick-starting the economy by enabling the banks to offer cheaper credit to the private sector. Pakistan economy grew by only 2.6 per cent against the target of 5 per cent in fiscal year 2000-01. The State Bank says that in case of “a more protracted and extended war in Afghanistan” the economic growth could range between 2.5-3.75 per cent in the current fiscal year against the target of 4 per cent.
BANKS response awaited: Central bankers say what perturbs them most is that the commercial banks are not responding positively to the changes being made in the monetary policy. “So far they have not cut their own lending rates significantly and they may not do it for some time,” said one senior official who declined to be identified. “The State Bank can only give signals to the banks. It cannot dictate changes in the lending rate structure,” he said.
Bankers say commercial banks would surely cut their lending rates and make cheaper credit available for investment and for day to day business requirements but the process may take some time.
They say three things stop them from responding immediately to the changes in the monetary policy: (i) high taxation rate (ii) a large drag of non-performing loans and (iii) high cost of financial intermediation.
But central bankers add another item to the list: inefficiency of the banks that stop them from lowering their intermediation cost even after a massive restructuring in the banking sector. This efficiency is evident from the fact that the gap between lending and deposit rates of all banks combined has risen to about 9 per cent in the first quarter of the current fiscal year.