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Yields on T-bills slashed by up to 47bps

Yields on T-bills slashed by up to 47bps

KARACHI: The cut-off yields on treasury bills (T-bills) were slashed by up to 47 basis points (bps) on Wednesday, but the bids offered by the banks fell much below the target set for this auction indicating their liquidity position.

The bids were Rs155 billion while the target was Rs250bn, which shows the banks’ shrinking capacity to invest in government papers.

For three-month T-bills, the cut-off yield was slashed by 45bps to 6.48 per cent while the amount raised was Rs61 billion. Similarly for six-month tenure, the cut-off yield was reduced by 47bps to 6.48pc and the amount raised was Rs81.5bn.

Market experts said that the slash in yields was expected after the monetary policy, which saw the interest rate cut by 50bps to 6pc. However, they maintained that the banks would find it difficult to earn higher profits as they did in 2014.

The government borrowed Rs356bn from scheduled banks in the first two months of this fiscal year (higher than last year) thus causing a liquidity shortage.

The banks have been facing liquidity crunch, which is being maintained through regular injections by the central bank.

The liquidity gap, at around Rs1.4 trillion, has been rising due to massive investment in the government papers and the falling inflow of deposits in the banks.

The protests by the business community against the withholding tax on banking transactions have also played a major role in the fall of deposits.

A recent SBP report showed that the bank deposits fell by Rs121bn in the first two months of this fiscal year.

Banking experts said that the withdrawal of cash for Eidul Azha has added to the liquidity problem.

According to currency experts, “There were 70pc dollar sellers in the market on Wednesday, which also needs cash from banks.”

Published in Dawn, September 17th, 2015

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