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KARACHI: Rate of return on short-term government papers rose to 22 percent on expected hike in the key policy rate at the auction held Wednesday.

The meeting of the Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) will be held on April 4, and the market is expecting further monetary tightening due to rising inflationary pressure.

In the previous emergent meeting held on 2nd March 2023, the MPC increased the policy rate by 300 basis points to 20 percent as fiscal adjustments and exchange rate depreciation led to a significant deterioration in the inflation outlook and a further upward drift in inflation expectations. The committee also rescheduled the next MPC meeting from April 27 to April 4, 2023.

Rs346.745bn bids received at auction for MTBs: Interest rate on short-term govt papers soars to 19.95pc

As the inflation remains high, analysts are expecting further 100 to 150 basis points increase in the key policy rate in the next policy meeting and the same trend was witnessed in the short term government papers auction held on March 22, 2023.

The State Bank conducted the auction for sale of Government of Pakistan Market Treasury Bills (MTBs) on Wednesday and received bids worth Rs 1.5 trillion.

Most of the bids worth Rs 1.052 trillion bids were submitted for the 3-month T-bills, Rs 152.5 billion for 6-month and bids amounted to Rs 286.26 billion for 12-month short term government security papers.

The federal government aggressively borrowed Rs1.116 trillion at a higher cut-off yield to meet its financial needs. The target for this auction was Rs 900 billion. Cut-off yield of all papers also increased ranging 50 bps to 114 bps.

The cut-off yield of 3-month rose by 100 bps to 21.9995 percent and the government raised Rs 949 billion. Some Rs 15.5 billion were borrowed against sale of 6-months MTBs and its price was set at 21.9901 percent, up by 114 bps. In addition, the cut-off yield of one year T-Bills rose by 50 bps to 21.4899 percent and the government raised Rs 151 billion.

In addition, the federal government borrowed some Rs 25 billion through Non-Competitive Bids. The total acceptance including Non-Competitive Bids was Rs 1.14 trillion.

Copyright Business Recorder, 2023

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