Poor participation in MTB & PIB auctions should cause Policy Rethink – SBP to announce Monetary Policy ahead of schedule?

The last successful auction for the 12month T-bill was on Sep 27, 2017, since then there have been 20 auctions conducted by the SBP and on 18 occasions there has been no bids made for the 12 month T-bill. The 2 auctions where bids were made got rejected.

Wednesday, July 4 2018 witnessed yet another auction which drew a tepid response from the market.

With the maturing amount of Rs.1,928.891 Billion and an auction target of Rs.1,500 billion the SBP only  got bids for the 3 month T-Bill in the amount of Rs. 497.289 billion or 33% of target, the amount accepted was even less at 23%.

There are upcoming maturities of 510.475 Billion in PIB and 1,444.626 Billion in T-Bill falling on July 18 & 19.

The SBP is scheduled to conduct a PIB auction on July 11, 2018 and a MTB auction on July 19, 2018, with auction targets being Rs.50 Billion for the PIB and Rs.1,500 Billion for the MTB.

For the PIB auction, the SBP will be issuing fresh bonds with revised coupons, up 25 bps, for 3 & 5 years but no change for the 10 and 20 year PIB.

The recent pattern of PIB auctions has not been very encouraging either and the market doesn’t expect the updated coupons to increase the interest in the PIB auctions as witnessed by the issuance of the Floating rate PIB through which the SBP has only managed to raise Rs.43 Billion in two auctions so far which less the half the target amount.

 With June’s inflation rate coming in at a 44 month high of 5.21%, banks will be even less inclined to invest at low interest rates.

If the central bank is serious about meeting its auction targets it should take a less ambiguous approach with the market on the short and medium term direction of the interest rates, either by accepting higher yields or by calling a Monetary policy committee meeting before the next MTB auction and raising the interest rates by a margin acceptable to the market.

(MLN)