The auction for three-month and 12-month Treasury Bills (TBs) failed to attract the targeted amount of Rs 50 billion, as money market dealers were demanding substantial hike in short-term yields. Total bidding amount was Rs 43.05 billion. Treasury Bills worth Rs 80.2 billion will be maturing on Thursday.
The Rs 20.001 billion was accepted in three-month at cut-off yield of 3.3277 percent against the last cut-off yield of 2.9750 percent, while Rs 192.620 million was accepted in 12-month at a cut off yield of 3.8635 percent against September 2 cut-off yield of 3.14 percent, thus hiking rates by 0.3527 and 0.7196 basis point, respectively.
The SBP is certainly trying to match the inflationary pace and is simultaneously consistent with its interest rate policy. Hence, it may revise its monetary policy stance in its next policy statement.
Recently, the tighter market liquidity condition is due to credit expansion, which would result higher growth, and it is certainly putting pressure on rupee liquidity, it is evident that prudent lending encouraged.
Meanwhile, money market dealers have adopted cautious approach due to a number of factors.
A trader of a local commercial bank said: "We opted for a cautious approach as we are approaching year-end, aggressive bidding in treasury bills would mean that we are committing funds over December 2004, which does not suit us at this point in time.
The demand for the rupee will persist as seasonal financing has started. Earlier, disbursement of salary will take place on account of Eid, it is expected that the banking system will be deprived of Rs 8 billion to Rs 10 billion until Eidul Fitr.
Furthermore, if the central bank intervenes in the forex market, the equivalent amount of rupee will be drained out."
It is estimated that overall liquidity in the market will range between Rs 30 billion to Rs 40 billion. The market is expecting one-week, two-week and four-week Open Market Operation (OMO), one-week and two-weeks OMO perfectly matches the next coming auction.
The overnight rupee borrowing rate will depend on calling of OMO, if called overnight the rate may gradually climb above 4 percent or else O/N lending rate would ease of to 1 percent.