Govt Rejects Bids for Fixed Rate PIBs in Auction

The government rejected all the bids for fixed-rate Pakistan Investment Bonds at an auction yesterday. It had received bids of Rs. 194 billion, exceeding its target of Rs. 100 billion in the first auction after the State Bank of Pakistan raised its policy rate. The central bank rejected three-year, five-year, ten-year, and fifteen-year long-term Pakistan Investment Bonds (PIBs), but did not receive bids for twenty and thirty-year PIBs. Analysts claim that the State Bank of Pakistan (SBP) rejected the bids because it wants to decrease the current high rates being offered on PIBs. However, banks were expecting high rates in the absence of financing from the SBP and the International Monetary Fund. They want to trade PIBs in the secondary market as yields in short-term market treasury bills in the secondary market are trading at 106 basis points. Meanwhile, the returns on treasury bills increased after the SBP raised its policy rate by 25 basis points. The central bank intends to sell a total of Rs. 825 billion worth of fixed and floating rate PIBs in October and December. Analysts expect it to hike its policy rate by 50 to 100 basis points in November amid rising inflation, a widening current account deficit, and a depreciating rupee.