Last week, the cut-off yield of PIBs and T/bills was mostly lower. It moved down by about 15 basis points to 50 basis points. Rejecting higher bids was appropriate decision that was not taken in haste. This time monetary and administrative tool were effectively used. The government can pick cheaper funds from the market through central bank’s window (open market operations) via special short dated purchases.

With a combined strategy, State Bank of Pakistan (SBP) and finance ministry can tactfully inject stability into yields. SBP can play a major role in reducing country’s debt. Several tools are available; it can leave surplus liquidity in the market or widen the gap between floor and ceiling interest rate corridor).

With few more such measures, T/bill & bond yields could gain sharply that will help in reducing the cost and the debt burden. It will also help bring back the yield curve in better shape.

I think the message is clear and loud.

The cut-off yield suggests that policy rate will not be hiked today. With CPI inflation expected to close around 11.40% by June 30, even a minor policy rate cut will place the authorities on a better footing. It may provide some breathing space to business community as well. Kibor rates are already extraordinarily high for the business community due market sentiment in the inter-bank market.

Returns on Market Treasury Bills soar to 70bps

The challenge is immense at a very crucial time for Dr Murtaza Syed, SBP’s acting Governor, as he could be one of the strong candidates for the governorship of SBP.

He is already facing a very difficult challenges, which include management of short-term FC exposure/inflows and the adequacy of reserve to measure the potential FX liquidity needs. The market desperately needs guidance from SBP.

Therefore, it is expected that the acting SBP governor and the monetary policy committee (MPC) will play their due role towards efforts aimed at creating economic stability in the country.

Copyright Business Recorder, 2022