KARACHI: The government received bids over Rs1.1 trillion in the latest Treasury bill auction, the State Bank of Pakistan said in a release issued on Wednesday.

However, the government only accepted bids worth Rs274.7 billion or 25 per cent less than the auction target of Rs400bn against the maturity amount of Rs345.9bn.

The quantum of bids indicated banking sector’s eagerness to invest in ­government papers while at the same time it reflects their inability to disburse funds to the private sector.

The prevailing high interest rate of 13.25pc has created serious problems for domestic investors as they find it difficult to pay back high borrowing costs.

However, the government is also relying on foreign investors increase inflows in to the T-bills.

The bid pattern and auction trend shows the bidding is concentrated in short term three-month T-bills reflecting that the interest rates could see a change in the medium to long term.

Investors bid Rs694bn for three-month T-bills while the government accepted only Rs170.3bn. This was the highest amount raised for the tenure at a cut-off yield of 13.46pc. For six-month instruments, the government raised Rs22.3bn from total bids of Rs148bn at a cut-off yield of 13.28pc.

Further, the government raised Rs82bn in 12-month T-bills at a cut-off yield of 13.13pc against bids worth Rs269.4bn.

The bid pattern clearly indicates that banks have large liquidity but is shying away from investing in long-term papers in the wake of possible cuts in the interest rate.

It also indicates banking sector’s inability to lend money to the private sector mainly due to high interest rate which has increased risks of default.

Published in Dawn, January 16th, 2020