Yields rose across all maturities at yesterday’s Treasury bills auction.
The Public Debt Department of the Central Bank offered maturing bills amounting to Rs. 25 billion. Bids amounted to Rs. 58.8 billion of which Rs. 16.77 billion was accepted.
The yield on the three-months bill rose to 11.36 percent from 11.34 percent a week earlier, while the yield on the six-months instrument increased to 12.91 percent from 12.86 percent. The 12-months bill saw its yield increase to 13.16 percent from 13.10 percent a week ago.
Currency dealers said interest rates could rise further as credit becomes tighter.
The Central Bank earlier this year slapped an 18 percent cap on credit growth rates after higher-than-expected growth last year helped trigger a balance of payments crisis.
"Lending is already undergoing some tightening and this is expected to put pressure on interest rates, already affected by relatively high inflation expectations," a currency dealer said.
Inflation reached 9.3 percent last June, the highest in three and a half years and the International Monetary Fund (IMF) forecasts inflation to reach near 10 percent by the end of this year.
Dealers also said the government would have to come good on its commitment to keep the budget deficit under control.
"Government borrowings from the domestic banking sector and the Central Bank surged during the first four months of this year. If not contained, this behaviour could put pressure on inflation and interest rates going forward," a dealer said.
The budget deficit for the first four months of this year reached 3.8 percent of GDP, the full year target is 6.2 percent.