The State Bank of Pakistan (SBP) on Wednesday, in its Treasury Bills auction, raised Rs 77.75 billion against the target amount of Rs 60 billion in three-month and 12 months respectively. The offered amount by the market was Rs 82.5 billion. The treasury bills worth Rs 90.9 billion will be maturing on January 24. By accepting its Rs 75.762 billion in three-month yield was raised to 4.3294 percent from 3.9462 percent, while one-year could fetch Rs 1.239 billion at 4.9891 percent against last cut-off of 4.4946 percent on November 24, 2004.
By hiking three-month and 12-month yields by 38 and 49 basis points, respectively, the auction result does indicate that the central bank will not allow inflation to slip out of its hand, and is keeping a close watch on the heating of economy.
A money market dealer of a local bank was of the view that the central bank has shown mild aggression in this auction, and therefore, we may see higher Consumer Price Index (CPI) number next month, adding: "You cannot put the inflation genie back into the bottle with a token increase in rates, when consumer prices have been rising uncomfortably, he calls the move correct and timely.
A foreign bank treasurer said: "The central bank is showing much stronger resolve to address the inflationary concern, and as the economy is about as nicely poised and balanced for further growth, so the central bank does not think yield-hike would do damage the growth."
He also said he does not think that the expansion is fragile, adding the equity market would continue to roar, though treasury bills yield-hike may give some excuse for a pause, and hence the correction may be witnessed next week before we gather moment for yet new highs.
Meanwhile, the latest three-month T-bills cut-off yield of 4.3294 percent is fraction above the last six-month T-bills rate cut-off yield of 4.3228 percent.
Majority of the money market dealers are of the view that in the next six-month treasury bills auction which is due on February 3, another 20 to 30 basis points jump in yield is in the pipeline, as the auction would be against zero maturity, hence the market would not offer the rupee at low yield.
Dealers say that the SBP may not risk with tiny auction target amount because another Rs 90 billion maturity will be falling on February 17, as tiny auction target would make next auction more difficult.
While, soon after the auction result shorts rushed to cover their position anticipating tighter rupee condition next week. The interbank one-month lending rose to 5.25 percent from 4.75 percent, two-month was hit at 5 percent, three-month and six-month was bid at 4.6 percent against 5 percent offer.
Normally, on an average it takes 10 to 15 days for the withdrawal money to come back into the system, which is estimated to be roughly around Rs 10 billion. Next inflow of Rs 5 billion is due on January 28.
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