KARACHI, Nov 6: The State Bank on Tuesday cut the fixed coupon rates on long-term Pakistan Investment Bonds in a followup of the 2 per cent cut in its discount rate announced on October 20.

The State Bank slashed the coupon rate from 11.80 to 10.50 per cent on three-year bonds and from 12.20 to 11 per cent on five- year bonds. It also cut the coupon rate from 13 to 12 per cent on 10-year bonds.

Whereas the reduction in the yield on three-year and five-year PIBs takes immediate effective the revised yield on 10-year bonds will be effective from next month when the SBP would sell these bonds.

Senior SBP officials said the SBP had cut the yield on PIBs in line with the 2 per cent reduction in the discount rate announced on October 20.

During this fiscal year the State Bank has so far slashed the discount rate by 4 per cent to steer the economy out of a slump. In July SBP reduced the discount rate by one per cent to 13 per cent and in August it slashed the rate to 12 per cent. On October 20 the central bank made another 2 per cent cut in the discount rate bringing it down to 10 per cent.

The cut in discount rate has accordingly resulted in lowering of the yield on treasury bills and Pakistan Investment Bonds. In August the central bank had first cut the yield on PIBs from 12.5 to 11.80 per cent for three years and from 13 to 12.20 per cent on five years. It had also cut the coupon rate on 10-year bonds from 14 to 13 per cent. Tuesday’s rate-cut is the second in row.

The SBP has invited bids for three-year and five-year bonds at the reduced coupon rates on November 21. The sale target is Rs5 billion. The central bank would invite tenders for 10-year bonds at the revised coupon rate in December.

Last month the State Bank had raised Rs12.2 billion through 10-year PIBs.

BANKS YET TO CUT LENDING RATES: Whereas the central bank has sufficiently eased off its monetary policy the banks are yet to respond by making substantial cuts in their lending rates. Heads of major banks say they are ready to cut lending rates but make it clear that an across-the-board lowering of the rates may not be possible.

“The easing off of the monetary policy would definitely lead to readjustment in our lending rates but we are still not able to go for an across-the-board reduction,” said head of a state -run bank who declined to be identified.

DEMAND FOR PRIVATE SECTOR CREDIT: Bankers say apart from the fact that certain things stop them from making a substantial cut in lending rates they are also waiting for more accelerated demand for the private sector credit before they can reduce their lending rates.

“The demand for the private sector credit remained sluggish in the first quarter as usual. It has just started picking up. We may be able to cut lending rates when the demand accelerates further,” said head of another major bank.

EXPORT FINANCING: Whereas the central bank has been following an expansionary monetary policy since the start of the current fiscal year it has not been able to make a substantial cut in the export finance rate. Export finance rate for the current quarter is 12 per cent — 2 per cent higher than the SBP discount rate. The exporters have been making insistent demand for lowering the rate but that is simply not possible for the central bank. Pakistan has promised to the IMF to keep its export finance rate at 1.5 per cent above the weighted average yield of the six-monthly T- bills in the last quarter. Central bankers say SBP had fixed the export finance rate for this quarter under the same formula. In other words the 12 per cent export finance rate was worked out by adding 1.5 per cent to the weighted average yield on six-monthly T-bills prevailing in the first quarter.

But the export finance rate should fall substantially in the next quarter (January/March 2002) because the weighted average yield of six-monthly T-bills in this quarter (October/December 2001) is expected to remain much lower than in the first quarter.

The SBP has cut the yield on six-monthly T-bills by 1.78 per cent to 8.5 per cent on October 31 — 10 days after it had slashed the discount rate from 12 to 10 per cent.