Cut-off yields on T-bills raised by up to 34bps

KARACHI: The government increased the cut-off yields on treasury bills (T-bills) by up to 34 basis points in the auction held on Wednesday.

The yield on three-month T-bills was increased by 34 basis points to 7.59 per cent while for the benchmark six-month papers it was jacked up by 25 basis points to 7.80pc, the central bank reported.

The government raised Rs508.6 billion and Rs150.7bn from the three- and six-month T-bills auction, respectively. In addition, the government also raised Rs55.6bn through non-competitive bids, taking total borrowings to Rs715.4bn.

Earlier this month, yields on Pakistan Investment Bonds (PIBs) were increased by 42 basis points.

Meanwhile, analysts do not see a change in the interest rate in the coming monetary policy scheduled this month — particularly when the economic growth rate is still low.

“I don’t think the increase in T-bills rates is an indication of a possible change in the interest rate. Bids pattern showed that the banks were asking for higher returns which forced the government to borrow at slightly higher rates,” said Tahir Abbas, head of research at Arif Habib.

Mr Abbas said that in the previous monetary policy, the SBP governor had announced that the interest rate would remain unchanged for the near term. “We believe the interest could change in May but not in March,” said Mr Abbas.

The head of research at Pak-Qatar Investment Company, Samiullah Tariq said the government remained within the target of Rs700bn set for the auction but the increase in the cut-off yields simply reflects the banks’ bids pattern due to increasing inflationary trend in the economy.

“Inflation in February was 8.7pc and it would be 9.5pc in March while there is consensus that inflation would be in double digits by the end of the current fiscal FY21,” said Mr Tariq.

He said the SPI showed an increase of 15pc last week, reflecting the growing pressure of inflation which would force the SBP to increase the interest rate by May FY21.