Last week, the cutoff yield on GDPs and Treasuries was generally lower. It was down about 15 basis points to 50 basis points. Rejecting higher bids was an appropriate decision that was not made in haste. This time, the monetary and administrative tool was effectively used. The government can select cheaper funds from the market through the central bank window (open market operations) through special short-term purchases.
With a combined strategy, the State Bank of Pakistan (SBP) and the Ministry of Finance can tactfully inject stability into returns. The SBP can play a major role in reducing the country’s debt. Several tools are available; it can leave excess liquidity in the market or widen the gap between the floor and ceiling interest rate corridor).
With a few other such measures, treasury and bond yields could rise sharply, helping to reduce the cost and burden of debt. This will also help put the yield curve back in better shape.
I think the message is clear and strong.
The cut-off rate suggests that the policy rate will not be raised today. With CPI inflation expected to close around 11.40% by June 30, even a slight cut in policy rates will put authorities on a better footing. It can also provide respite to the business world. Kibor rates are already extraordinarily high for the business community due to market sentiment in the interbank market.
Yields on market Treasuries soar to 70 basis points
The challenge is immense at a very crucial time for Dr. Murtaza Syed, Acting Governor of SBP, as he could be one of the strong contenders for Governor of SBP.
It already faces some very difficult challenges, including managing short-term FC exposure/inflows and adequacy of reserves to gauge potential foreign exchange liquidity needs. The market desperately needs advice from SBP.
Therefore, the Acting SBP Governor and the Monetary Policy Committee (MPC) are expected to play their part in the efforts to create economic stability in the country.
Copyright Business Recorder, 2022