The State Bank of Pakistan (SBP) is likely to announce a target of Rs 55 to Rs 65 billion for the auction of Treasury bills scheduled for Wednesday, September 28, as the market would witness a maturity of around Rs 70 billion.
The next auction of Treasury Bills (T- Bills) is likely to be held just before the end of Q1FY06 on September 28, 2005, for settlement on September 29, 2005. The inflow from maturing T-Bills on September 29, 2005, will be Rs 58.775 billion, along with the inflow from last week''s OMO of Rs 10.7 billion. Total inflows on September 29, 2005, will amount to approximately Rs 70 billion.
The pre-auction target for the coming event is likely to be in the region of Rs 55 to Rs 65 billion, depending on whether market liquidity continues to remain tight to a greater or lesser degree in the period leading up to the auction settlement.
The current cut-off yields on 3-, 6-, and 12-month T-Bills are 8.1000 percent, 8.1388 percent, and 8.7907 percent, respectively.
These yields are likely to head upwards in the coming auction on the back of persistent inflation. According to SBP website, Core Inflation has averaged 9.04 percent for July-August 2005 and 9.22 percent for August 2005 over August 2004.
The CPI inflation number for July-August 2005 is 8.70 percent, and 8.41 percent for August 2005 over August 2004 with the 12 month moving average for CPI inflation at 9.17 percent.
Salman Jafri, money market dealer at Jahangir Siddiqui Capital Markets Ltd, in a report said that the core inflation is defined
as CPI inflation excluding the effects of Food and Oil prices, and as such is a barometer of asset price inflation (particularly housing prices). Monetary policy is geared towards maintaining price stability and, in theory, having a direct impact on Core inflation. It has to be said, however, that the impact can only show on Core inflation if the interest rates are positive in real terms ie after subtracting the rate of inflation from nominal interest rate the resulting number should be positive.
Since this is clearly not the case in Pakistan, it is unlikely that core inflation will come down until interest rates are brought into the positive zone.
This may require further hikes in the SBP Discount Rate and subsequent tightening via increases in T-Bills cut-off yields and an active OMO process. The other, more courageous option is an increase in Statutory Reserve Ratios which is directed towards controlling the supply of credit in the economy by requiring banks to deposit a larger percentage of their deposits with the SBP rather than lend them out.
The JS PGBI, which is the primary indicator of Pakistan Bond Markets, showed an increase of 0.0153 points over the week, bringing the index value to 90.3851 with a weighted index yield of 9.3004 percent on September 24, 2005. The JS PGBI has shown an overall decrease of 9.6149 percent since its inception on July 1, 2004 and a fall of 8.2506 percent since December 31, 2004.
Last week the 10-year bond yield fell 0.01 percent to 9.46 percent from last week''s level of 9.47 percent, while the 5-year yield fell to 9.14 percent from last week''s 9.17 percent and the 3-year yield moved up to 9 percent from last week''s level of 8.99 percent.
The money market remained very tight last week with overnight repos trading above 8.25 percent for the first two days of the week and subsequently shifting up to a rate of 8.9 percent for the remainder of the week. Banks had to resort to discounting their securities with the State Bank of Pakistan on four occasions with the amount discounted during the week totalling Rs 28.278 billion.
The tight liquidity resulted in the shorter end of the yield rotating up with 1-, 3-, and 6-month repos, moving up to levels of 8.19 percent, 8.20 percent, and 8.30 percent, respectively, versus last week''s levels of 7.93 percent, 8.08 percent, and 8.23 percent for the same tenures. The SBP did not resort to injection of liquidity into the market via Open Market Operations (OMO) and seemed comfortable with the tight money market which was in line with its policy of ''Tightened Monetary Expansion''.
Comments
Comments are closed.