AKD Quotidian about — T-Bill auction results update

Karachi, January 10, 2013 (PPI-OT): In the latest MTB auction, the GoP raised PKR 208 billion against offered bids worth PKR 376 billion while it rejected entire bids in the last auction.

According to AKD Securities, the cut off yield for 3M16M/12M came down by ~9bps each to 9.18%/9.2%19.27% where most bids came in the 6 month tenor (82% of bids worth PKR 172bn). According to the latest T-bill trend and benign CPI reading at 7.93%YoY in Dec’12 vs. GoP target of 9.5%, AKD Securities does not expect monetary tightening to be on the cards in the near term. At the same time, the last PIB auction showed no change in yields vs. the previous auction result. Nevertheless, with a cumulative rate cut of 450bps since Jul’11 AKD Securities believes the monetary easing cycle has ended with risks stemming from i) increasing GoP borrowing leading to M2 growth of 14.14%YoY and further deficit monetization considering election year and populist decision making (increasing wheat support price), ii) PKR -US$ depreciation of 3.0% FYTD, and iii) fx erosion with non materialization of foreign flows and increasing NDAJNFA ratio. Further cuts in the DR beyond 9.5% appear unlikely in the near-term, particularly with Pakistan’s ongoing talks with IMF to possibly enter a new program and assessment of economic health of the country and loan repayment capacity. As such, reversal in monetary easing in 2013 cannot be ruled out, particularly in the post-election scenario.

T-bill Auction result Jan 9’12: In the latest MTB auction, the GoP raised PKR 208 billion against offered bids worth PKR 376 billion while it rejected entire bids in the last auction. The cut off yield for 3M/6M/12M came down by ~9bps each to 9.18%19.2%19.27% where most bids came in for 6 month tenor (82% of bids worth PKR 172bn). Further cut in the DR beyond 9.5% appear unlikely in the near-term, particularly with Pakistan ongoing talks with IMF to possibly enter a new program. As such, reversal in monetary easing in 2013 cannot be ruled out, particularly in the post-election scenario.

Pakistan and IMF Talks: Pakistan and IMF officials have started crucial technical talks for assessment of Pakistan economic health and country’s loan repayment capacity. In this regard according the news sources, FBR discussed measures in achieving tax collection target of PKR 238tn in FY13, where FBR has provisionally collected PKR 895 billion (+6.5%YoY) in 1HFY13. At the same time, tax amnesty schemes are also expected to be discussed in order to achieve the ambitious revenue collection target for FY13. While a formal note has not been released by the IMF, AKD Securities believes any positive assessment would help Pakistan gain inflows from multilateral lenders (ADB/IDB).