Yields fall at T-bills auction

KARACHI: State Bank of Pakistan on Wednesday said the yield on its six-month Treasury bills fell to a record low of 1.68 percent at its regular auction in line with falling interest rates due to ample liquidity thanks to increased remittances and seasonal loan retirements.

The six-month T-bill was last sold at 1.72 percent April 2.

According to a Dow Jones Newswires survey of five treasury dealers Tuesday, market participants had expected a 1.68 percent-1.73 percent cut-off yield.

Bankers said the fall will further bring down the cost of loans under the special export refinance scheme where the rate is linked to the last cut-off yield on the six-month paper. In April, the export refinance rate was cut by one percentage point to 2.5 percent, which meant exporters can borrow at a maximum of 4 percent from commercial banks.

The central bank holds bi-weekly auctions for three-month and one-year paper together, and six-month paper separately.

The central bank said it sold Rs 12.1 billion in six-month T-bills against an original target of Rs 10 billion. Bids totaled Rs 27.4 billion.

Yields on government securities have fallen sharply since the central bank cut its key discount rate by 1.5 percentage points to 7.5 percent in November.

Dealers said the fall in the cut-off yield shows that there is no change in the central bank’s policy of discouraging banks from investing in T-bills. The central bank wants banks to divert their funds to the private sector to boost the economy, but banks have been slow to lend, citing the high risks and little demand.

“But I think this (Wednesday’s cut-off yield) is the level where these rates should bottom out,” said a dealer at a foreign bank, noting that the yield cannot forever remain below the inflation rate.

Inflation, as measured by the consumer price index, is close to 3.4 percent, which means banks are getting a negative real rate of return if they invest in T-bills at current yields.

Another treasury dealer said due to huge liquidity in the system banks are looking to lock in their funds in one-year T-bills, which offer higher rates than the six-month.

“I am expecting a rally in the long-term instrument and people are eyeing the one-year auction on April 15 when the auction size is likely to be quite big,” said another dealer. Dealers said around Rs 45 billion worth of T-bills are maturing over the next two weeks. —Dow Jones Newswires

SBP cuts export lending rate

KARACHI: State Bank of Pakistan (SBP) has cut lending rate to banks under the Export Refinance Scheme by 50 basis points to 3.5 percent for May, in line with a cut in the six-month Treasury bill rate, the bank said on Wednesday.

The scheme aims to provide cheaper loans to exporters.

The central bank said banks can charge a maximum premium of 1.5 percentage points above the export refinance rate on loans to exporters.

The refinance rate, which is linked to an average of the six-month Treasury bill rate, has fallen from 13 percent in July 2001. —Dow Jones Newswires

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