If there had been any doubts among market participants that the discount rate will be slashed in the upcoming monetary policy statement announcement, they were certainly alleviated by the time the State Bank of Pakistan conducted its most recent T-bill auction on August 8, 2012. The demand for treasury bills which had looked sketchy in the past couple of auctions, jetted as the central bank received total bids worth almost Rs424 billion, overwhelming the pre-auction target of Rs300 billion. Market participants expectations of lower policy rates in coming weeks and months were apparent from the trend of participation as only about five percent of the total bids received were for the short-tenure, three month T-bills. By comparison, 48 percent of the received bids were intended for 6-month T-bills and 47 percent were aimed at 12-month government papers. The cash-strapped government availed the opportunity and eagerly lapped up about Rs350 billion from the market, compared to its pre-auction target of Rs300 billion. However cut-off yields plunged across the board, signaling yet again that the policy rate is expected to drop. The cut-off yield on 3-month paper dropped by 36 bps to 11.46 percent, while the same on 6-month and 12-month T-bills sliced by 27 bps and 19 bps to end at 11.60 and 11.70 percent, respectively. These results perfectly compliment a recent survey of financial institutions and their expectations from the upcoming MPS, conducted by BR Research. In that survey, after the announcement of inflation numbers, 22 out of 27 respondents predicted the policy rate would be slashed by at least 50 bps, while just five expected the SBP to maintain the status quo.
Comments
Comments are closed for this article.