Six-month treasury bills hiked by 55 basis points

By hiking the Treasury Bills (T-bills) rate, the State Bank of Pakistan (SBP) has sent a clear signal to the market that tightening is on cards, and it is committed to taking every step to contain inflation. Though by international market practice the T-bills auction target amount is mostly accepted by the central bank. Against the target amount of Rs 5 billion, the market offered Rs 5.35 billion for six-month treasury bills.
To raise the target amount, the central bank had to accept the market demand of 5,5863 percent yield, which it did not. It accepted Rs 1 billion only, which is a very tiny amount by our market standard and to do so it has to raise yield by 55 basis points, but it certainly provides clearer direction on future interest rates trend, six-month T-bills yield rose to 4.8684 percent against last cut-off yield of 4.3228 percent.
It is worth noting that on August 19, 2004, the cut-off yield was 2.6415 percent, since then six-month yield has so far rose by 2.248 percent.
It seems the SBP is trying to adopt a balanced approach to give space to the market and check the market volatility. On one hand, it is allowing the rupee to gain strength, it simultaneously is also pushing up the T-Bills yield in almost every auction it is conducting to avoid bigger move at one go. Both the strategy is often used as an effective tool to slow down the threat of inflation.
The market's general perception on interest rate remains extremely bullish. Banks that are short in securities are borrowing through repo in short-term call market, which means they are not willing to commit themselves for longer duration, and are prepared to pay extra for the short period of tune, so that they can fund their advances and meet their SLR.
A money market dealer of a foreign bank said: "I will not he surprised at seeing six-month T-bills rate hitting 6 percent by June end. We have to keep a close watch on the economic numbers for more guidance."
Meanwhile, today OMO maturity and settlement, against T-bills of Rs 13 billion market is likely to remain square. Discounting is unlikely to take place this week, but overnight rupee lending will climb and is expected to trade between 4 percent to 6 percent ranges until weekend.
Ranges for Repo transactions against T-bills in l week was 4 percent to 4.5 percent, one-month between 4.5 percent to 5 percent, three-month was trading between 4.75 to 5.25 percent, and six-month was dealt between 5.25 to 5.75 percent.