The State Bank of Pakistan (SBP) on Wednesday has raised yields on both three-month and 12-months Treasury Bills which the market received as signal for improvement in the interest rates.
The State Bank accepted Treasury bills worth Rs 57.16 billion against markets offer of Rs 75.48 billion by hiking rate by 13 basis point in both periods in 3-month and 12-month.
The SBP remained below the target of Rs 65 billion. The inflow of Rs 65 billion is scheduled on Thursday. It left about Rs 8 billion for the market already long with surplus liquidity.
In 3-month Rs 29.568 billion was accepted at 1.745l percent yields and in one-year Rs 27.5 billion was accepted at 2.2452-pct yields, while in its last T-bills auction, the cut-off yield was 1.6137 percent and 2.1091 percent, respectively.
A Treasury Executive of a Pak commercial bank says: "Though the SBP was consistent with its policy of gradual interest rate rise by hiking 5 to 6 basis point for quite sometime. The current move looks quite timely and appropriate providing clear direction to the market."
The global rates have already started picking up. Fed is expected to start jacking up its rates before the US election, since the US economy is showing clear sign of heating. In its last move, US made 11 cuts in a span of 24 months by slashing US Fed find rates from 6 percent to 1 percent.
While Pakistan's economy is also showing inflationary signs, hence the central bank has positioned itself comfortably, and if need arises, small adjustments of interest rates won't hurt the market, said an expert.
A Treasury head of a foreign bank says: "I am expecting one-year yield to settle around 3 percent by the year-end, unless there is priced for a major shift of our interest rate policy."
The estimated liquidity in the market is around Rs 10 billion, and the overnight rate is expected to remain below 1 percent unless OMO is called.
A number of bond dealers is of the view that they have already entered into a new band, expecting 10-year PIB yield to gradually rise to 6.75 percent by the end of second quarter. Many dealers believe that 10-year PIB yield is likely to settle around 6.65 percent before the May 28 auction.