KARACHI: The cut-off yields on treasury bills edged down at an auction on Wednesday, driven lower by a number of positive economic data and expectations of slowing inflation, analysts said.
The cut-off yields on benchmark six-month Treasury bills fell 9 basis points to 13.8390 percent at an auction, the central bank said. The cut-off yield on the 12-month and three-month papers came at 13.8499 percent and 13.7300 percent, respectively,
"There is more interest in T-bills of 12 months as the rates are a bit better," an analyst said The State Bank of Pakistan said it sold Rs20 billion worth of six-month bills, Rs107.7 billion of 3-month bills and Rs403.6 billion of 12-month paper. It received total bids worth Rs1.17 trillion. Settlement of the auction will take place on Thursday.
Inflation, money supply figures and the projected budget deficit as a percentage of GDP have all fallen over the past few months and analysts said the auction result is an indication of an interest rate cut in coming days.
They said yields had fallen on the back of expectations that inflation will ease further. Consumer inflation slightly edged up to 10.5 percent for August compared to 10.3 percent in July as the government tinkered with weights of different products in the basket.
Pakistan Bureau of Statistics announced rebasing of the year to calculate CPI inflation to 2015/16 from 2007/8. Under the old method, consumer inflation for August stood at 11.63 percent from 10.3 percent in July. Rebasing of the year turned up July inflation at 8.4 percent.
“The fall in the T-bill yield clearly manifests a gradual easing of monetary stance. We expect the central bank to cut its policy rate by at least 25 to 50 basis points by the year end,” said another analyst.
The central bank kept its policy rate steady at 13.25 percent in its latest monetary policy announcement earlier last week. The SBP expected inflation to average 11 to 12 percent for the current fiscal year of 2019/20 and the “current stance of monetary policy is likely to bring inflation down to the target range of 5 – 7 percent over the next twenty-four months.”
Analyst said inflation does look to be on a downward trend but major concern would be if the oil price moves beyond the current levels. Volatility in oil prices has serious implications for Pakistan’s economy and a key factor behind inflation rates given its substantial dependence on imported fuels.