Financial Institutions are Hesitant in Loaning Money to Govt Ahead of Interest Rate Increase

Financial institutions are showing reluctance on lending money to the government these days as a hike in interest rate is expected during the next 3 days. The industry has being expecting the hike after SBP announced an increase was on the cards on September 29.

Tenders for sale of 3, 6 and 12-month Government of Pakistan (GOP) Market Treasury Bills (MTB) were invited by State Bank of Pakistan (SBP), through Primary Dealers on September 26, 2018.

According to available data, primary dealers are only bidding for for 3-months MTB , with no bids given for bonds with 6 and 12 months maturity period.

Primary dealers have given Rs 1,250 million bid for 3-months MTB. Against these bids, the government has borrowed Rs 750 million on face value. These MTB have been issued at the rate of 7.75%.

The auction calendar of MTBs has been issued by SBP for the period of September till November 2018. For the MTB auction on September 28, the government has set a target of Rs. 350,000 million to finance its budget deficit. During this auction, MTBs worth Rs. 316,057 million will be maturing.

Investment banker and financial analyst Muzzammil Aslam told ProPakistani that the non-participation of the financial industry in 6 and 12-month MTBs shows that the industry is expecting a hike in policy rate in 3 days.

“Market is expecting a hike in policy rate by 50 to 100 basis points and the new policy rate could be 8 or 8.5 percent,” Aslam said.

On the other hand SBP spokespersons informed ProPakistani that the central bank will announce its Monetary Policy on Saturday, September 29, 2018. SBP will announce this policy through a press release.