State Bank raises Rs. 1.15 trillion entirely from 3 MTB’s despite a rate hike

Central Bank sold MTB’s worth Rs. 1.15 trillion after it received receives bids worth Rs. 1.863 trillion in 3 – Month Treasury Bills. On the other hand, no bids in 6, 12 Month Instruments in the first auction since it raised rates in the Monetary Policy Announcement last week.

The State Bank of Pakistan on Friday raised the interest rates by 25 basis points on to 6 percent, contrary to the market consensus. In this first MTB Auction post the MPS Announcement, SBP has raised a total of Rs. 1.153 trillion against the target of Rs. 900 billion.  

The entire amount was raised from the 3 month instruments, as other 6 month and 12 months instruments received zero bids from investors.

The economy has been evolving on numerous fronts since the last quarter of 2017. The rising oil prices in the global markets translating into increasing inflation has prompted Pakistan’s Central bank to pre-emptively raise rates to contain the macroeconomic indicators below the set targets.

On the other hand, international trend seems to be leaning towards raising rates throughout the world as global growth witnesses a resurgence after a relatively lethargic economic decade ensued by 2007 recession. Furthermore, Pakistan has had a dire need to fix the external situation where Current Account Deficit continues to grow despite Government’s efforts.

The overwhelming response to today’s auction goes on to prove investor willingness to participate in the auction. But the interest remains mostly concentrated in the three month bills, as many argue, the timing of the next hike has had the investors in a state of quandary over whether to commit long term or not.