Govt raises Rs2.2 trillion via T-bills auction

KARACHI: The government raised a hefty Rs2.2 trillion through an auction of the Market Treasury Bills on Wednesday, while the yields didn’t significantly change on short-duration papers.

The raised amount was much higher than the pre-auction target of Rs900 billion. The yield on the three-month T-bill remained unchanged at 21.9997 percent, with the yield on the six-month paper down 1 basis point at 21.9789 percent. The yield on the 12-month T-bill, however, increased 40 bps to 21.8898 percent, according to the T-bill auction result released by the central bank.

Analysts said the T-bills’ yields on the three, and six months papers were stable due to a lower-than-expected rise in interest rate. “The increase in interest rate was lower than expected. The market was expecting 200bps, while the actual increase was 100bps,” said Fahad Rauf, head of research at Ismail Iqbal Securities.

The yields were stable as a result of that. The huge government borrowing through T-bills shows its high funding requirements. The benchmark six-month Karachi interbank offered rate decreased by 38 basis points to 21.98 percent.

The State Bank of Pakistan raised the policy rate to a record 21 percent to curb crippling inflation. The SBP believes the rate hike, along with previous tightening, would help achieve a medium-term inflation target over the next two years.

However, uncertain global financial conditions and domestic political situation pose risk to the central bank’s assessment, according to Alfalah Securities. “In our view, this is the end of a tightening cycle,” it said in a note. The note explained that record-high March consumer price index inflation of 35.4 percent had materially influenced the monetary policy decision.

“Note that broad-based increase in prices, have taken July-March FY2023 average inflation to 27.3 percent, withdrawal of electricity subsidy, increase in the general sales tax to 18 percent, increase in federal excise duty on cigarettes and sugary drinks, and recent exchange rate depreciation has significantly increased inflation outlook,” it said.