KARACHI: Pakistan Investment Bonds (PIBs) yields rose on Wednesday, in line with market expectations, in the first auction since the central bank increased its key discount rate to 13.75 percent, dealers said.
The yield on three-year PIBs increased by 70 basis points (bps) to 14 percent, the SBP’s PIBs auction result showed. The yield on five-year paper gained 24 bps to 13.19 percent. The bids were rejected for 10 and 15 years papers. The bids were not received for 20-, and 30-year papers.
The government raised Rs89.4 billion through the sale of PIBs versus the target of Rs100 billion.
“I think yields increased as the policy rate went up in the last monetary policy. The policy rate has increased by 150 bps from last auction. The impact is also reflected in the current PIB auction,” said Samiullah Tariq, the head of research at Pak-Kuwait Investment Company.
The central bank hiked policy rate to 13.75 percent to address the stubborn inflation that rose to a two-year high in April, particularly weighed by the strong domestic demand and second-round effects of supply shocks. The increase in policy rate was aimed at anchoring inflation expectations, cooling the economy to a more sustainable pace, and containing the current account deficit. The consumer price index inflation surged to 13.4 percent in April from 12.7 percent in the previous month.
Dealers said the money market was keenly monitoring PIBs’ auction following the SBP’s warning that the market rates should be aligned with the policy rate and in case of any misalignment after the latest policy decision, it would take appropriate action.
Since the last Monetary Policy meeting, secondary market yields, benchmark rates and cut-off rates in the government’s auctions have risen, particularly at the short end,” the SBP said in its monetary policy statement earlier this week.
Uncertainty over the resumption of an International Monetary Fund programme has caused volatility in the economy and markets amid a political crisis since a new coalition government took over last month.
Analysts said the SBP is monitoring the secondary market yields and may use policy tools like long tenor open market operations and outright purchases to bring market yields in line with policy rate.
“The SBP has jettisoned forward guidance as there is too much uncertainty and it is not fair to have a strong view around inflation and interest rate outlook,” said Fahad Rauf, the research head at Ismail Iqbal Securities.
Source: The News