In 3-month bills, it accepted Rs 4.9 billion at cutoff yield of 8.10 percent. In 6 months, the accepted amount was Rs 750 million at cutoff yield of 8.1388 percent; and in 12-month the SBP accepted Rs 14.6 billion at previous cutoff yield of 8.7907 percent.
This was not the first time that the central bank accepted more than the target amount. In the past, on numerous occasions the SBP had picked either excess or less than the auction target amount. Since SBP had pumped money in a continuous manner since last auction, it had no hesitancy in seeking Rs 19 billion against the target of Rs 5 billion.
Maintaining last cutoff yields was a wise decision on the part of SBP, as opting to wait for more clues does make a lot of sense. Any deviation could have provided wrong signals to the market. It also gives a clearer direction and shows commitment to the market that it stands with its monetary policy stance.
The SBP is certainly watchful of the developing scenario and waiting to get the feel of earthquake-related impact on economy, while the latest inflationary numbers do suggest that the central bank''''s decision to hike rates during the calendar year was appropriate. Though the issue of oil prices is the global concerning factor, early winters and severe cold in US could push oil prices higher due to demand of heating oil. Therefore, surge in oil prices in the international market could force adjustment of domestic fuel prices.
A Treasury head of a foreign bank said, "Today''''s auction bid certainly shows how badly the market needs long-dated bonds. Ministry of Finance has to realise the market need. It is not only discouraging banks to make future commitments, but has also to understand the consequences of mismatches run by banks. Running such mismatches is a risky proposition from banks'''' perspective, as its interest book remains un-hedged. A good quality bank, or any bank, cannot run its affairs in such unprofessional manner. I do not understand why the SBP''''s auditors don''''t come up with an objection to such mismatches run by the banks. The central bank should have a balanced approach and should take up the matter with the concerned authority".
Head of treasury of a foreign bank says: "There is ample of corporate demand for long-term paper and in the absence of PIBs they are aggressively bidding for 12-month T/bills paper. They are also running mismatches, but I am not sure how easy it is for them to run gaps."
It is expected that the rupee market will remain tight, with chances of discounting, unless SBP injects funds, as Eid withdrawals may see demand for cash rupee.
Meanwhile, in the interbank foreign exchange market volatility was witnessed. The excess flow of foreign home remittances has helped the rupee to stabilise. But the ballooning ''''trade'''' and ''''current account'''' deficit is the alarming factor, unless the pace gets checked. The inflow of $200 million from the World Bank on Wednesday, and a similar amount from Asian Development Bank for earthquake relief would help in replenishing the forex reserves.
Asian Currencies: The behaviour of regional Asian currencies during the calendar year 2005 show across-the-board weakening against dollar. They are: Yen 11.2 percent; Indonesia Rupiah 7.2 percent; Taiwanese $6 percent; Thai Bhat 5 percent, Indian Rupee 4 percent, South Korean Won 3 percent, Sri Lanka Rupee 2.4 percent; Singapore $3.6 percent; Philippine Peso 0.2 percent and Pak Rupee 0.5 percent.
The currencies that gained strength against dollar were Chinese Yuan 2.2 percent, Hong Kong $0.6 percent and Malaysian Ringgit 0.7 percent.
SBP must be watching the currency movement in the region. Most of them are taking hit against US dollar due to higher international oil prices. It may become difficult for Pakistan''''s exporters to maintain their competitive edge at a time when the global challenge is knocking at every door. Further weakening of the Pak rupee is a definite possibility, say forex dealers.