Govt gets less-than-targeted financing in T-bills auction

The government borrowed on Wednesday a mere Rs215 billion from commercial banks against the target of Rs850 billion as the banks jacked up the lending rate significantly. The government acquired financing through the auction of three-, six- and 12-month T-bills. Cut-off yields (lending rates) on the papers increased by up to 129 basis points to a record high of nearly 17%. Had the government borrowed more, the lending rates would have gone up further. The sharp increase in the rate of return for commercial banks came after the central bank surprisingly jacked up its key policy rate by 100 basis points to a 23-year high at 16% on Friday. More importantly, the banks offered a total of Rs646 billion in financing, though they knew that the government had targeted to borrow Rs850 billion through the auction. This suggests that the banks had a dearth of funds or they were expecting a further hike in the central bank’s policy rate.