ISLAMABAD: Timely steps taken by the Ministry of Finance helped increase the maturity profile of government debt as well as liquidity management for the State Bank of Pakistan, impeccable sources told Customs Today on Saturday. .
“Liquidity shortage at the time of settlement became more challenging due to the unplanned and sudden nature of these developments, however, the SBP injected Rs 250 billion just after the settlement day through an open market operation (OMO) with a cut-off rate at 10.1 percent, which proved helpful in the improving liquidity status,” said a well-placed source at the Finance Ministry told this scribe here. The source said that OMO cut-off rate was higher than the policy rate on many occasions because SBP had consciously kept the money market tight, keeping in view external sector developments.
“Besides getting liquidity through OMOs, the utilization of SBP’s overnight repo (floor) and reverse repo (ceiling) facilities shows that banks approached SBP for liquidity 113 times during Q3-FY14 (they borrowed an average of Rs 13.8 billion per visit), but placed liquidity only 32 times (with an average of Rs 7.5 billion)” the source further revealed.
The source said that exchange rate and other notable developments at the very short-end of the yield curve (up to 12 months), also impacted the term premium, and the market’s participation in government securities the exchange rate. “Specifically, elevated interest rates, and the fall in inflation in the presence of healthy term premiums on medium to long term government securities, sharply changed banks’ interest in Pakistan Investment Bonds (PIBs),” the source said.
The source said that the government received bids of Rs 1,030.0 billion in three PIB auctions held in the current fiscal year against the pre-auction cumulative target of Rs 180 billion and government accepted most of these bids (Rs 985.1 billion), which sharply increased the average maturity of bank holdings of government securities which proved good for the banking industry and also for the government’s maturity profile.
“The bid pattern of T-bill auctions, especially in March 2014” the source added saying, also indicated that banks were expecting a rate cut in the near future, specially, commercial banks offered money in 6 and 12 month T-bills, in sharp contrast to the pattern which was also observed in the beginning of the current fiscal year. “Resultantly, banks offered record volume of Rs 542.9 billion in PIB auction held on March 26, 2014, against the target of Rs 60.0 billion,” the source added saying that aggressive bidding to lock in their funds for longer maturities (i.e., PIBs), even when there was a liquidity shortage at the time of settlement, was an indication of the interest rate outlook of the banks.
