The State Bank of Pakistan, in a surprise move, accepted Rs 22.55 billion, against the auction target amount of Rs 10 billion, in six-month Treasury Bills auction. By accepting more than the target amount, it had to raise yield by 0.5078 percent from 5.1845 percent to 5.6923 percent. Total amount of bids received was for Rs 31.825 billion. Money market dealers had thought that the central bank would stick to the auction target amount, given the equity market factor, as excessive draining of funds from the system might risk stock market recovery.
This may not be true, as the SBP is better placed and must be aware of the source of liquidity, which must be in the pipeline.
Overall, the estimated amount of liquidity in the market should be ranging between Rs 8 and Rs 10 billion With OMO maturity of Rs 9.5 billion on Thursday, it is expected that the market would either be square, or short by a couple of billion of rupees. Therefore, discounting was not a possibility.
A Country Treasurer and Head of a Capital Market of a foreign bank said: "I am quite astonished by the aggression shown by the central bank. Today''''s hike in T/Bills yield certainly suggests that inflation tops the priority list. I would not be surprised to see double-digit inflation figure for the month of February."
A Chief Dealer of a Pakistani bank said: "There are still inflationary pressures, out there. Oil prices, for example, are back near $54 a barrel. Food or rentals should still be on the higher side. I don''''t think the coming price data would suggest that inflation has eased off. The SBP has to worry about whether or not it is keeping inflation under control and it would probably like to be on the side of caution."
Following the announcement of T/Bills auction result, the banks rushed to cover their short position, fearing Call and Repo rates would jump up.
One-week, two-week and one-month offer inched up by 0.25 percent to 0.5 percent. Tighter condition is likely to prevail until weekend. Money market dealers were of the view that unless liquidity is injected into the market, there could be small discount by the end of next week.
Meanwhile, soon after the auction result, rupee forward premium surged. Four-month and six-month forward premiums rose to 65 paisa and 110 paisa, respectively, gaining almost 5 paisa.