Latest T-bill auction yet again showed staggering participation of PRs243bn akin to the auction held last month. However this time 3-mth paper took the limelight with PRs72bn participation, alongside 12-mth paper with participation of PRs118bn.
SBP mopped up PRs51bn in 12-mth, PRs13bn in 6-mth and PRs17bn in the 3-mth paper. T-bill cut-off yields also declined in the range of 13bp to 18bp.
We reiterate that T-bills result should not be taken as a signal of SBP policy direction but rather an expression of market expectations and volatility.
Market expectations seems to be mixed on near term direction of money market rates and extent of policy direction and hence this barbell participation pattern.
Our view is simple yet critical that market yields and monetary policy would be dictated by the fiscal account going forward. We believe 100-150bp room for easing in policy rate is available, provided things improve on external financing. However in the upcoming MPS we expect status quo to be maintained.
KASB Securities and Economics Research
6 May 2010
