The federal government Wednesday borrowed over Rs 1.8 trillion through the auction for short-term government papers. The State Bank of Pakistan (SBP), on January 31, conducted the auction for the sale of 3-month, 6-month and 12-month Market Treasury Bills (MTBs). Banks aggressively participated in the auction, however, financial institutions were reluctant to invest in more than three months' papers and hence the entire bids were submitted for 3-month T-bills. Not a single bid was received for 6-month and 12-month MTBs in the auction.

This is the third auction for MTBs in which no bid was received for 6-month and 12-month varieties. In the MTBs auction held on January 3 and 17, 2018, no bid was submitted for 6-month and 12-month papers. Analysts said after inflationary pressure on the economy due to rising oil and commodity prices in the international market, banks are expecting that the State Bank of Pakistan may tighten the monetary policy in coming months.

The SBP has already increased policy rate by 25 basis points (bps) to 6 percent for next two months to preempt overheating of the economy and inflation breaching its target rate. Therefore, financial institutions are avoiding long-term investment in government papers.

According to SBP announcement, MTBs auction fetched bids amounting to Rs 1.863 trillion with a realized value of Rs 1.837 trillion against the target of Rs 900 billion set by the government for this auction. Out of the received bids, the federal government borrowed Rs 1.153 trillion (Rs 1.137 trillion realized value) at 6.2144 percent, up from 5.9910 percent.

Copyright Business Recorder, 2018