T-bills yields fall but rate cut bets cool on inflation

KARACHI: Treasury bill yields declined slightly at an auction on Wednesday as investors pared back expectations for a central bank interest rate cut next month amid signs of rising inflation in November.

The cut-off yield on the three-month paper fell by 5 basis points to 21.4499 percent, while the six-month and 12-month yields dropped by 7 basis points each to 21.4299 percent and 21.4300 percent, respectively.

The State Bank of Pakistan (SBP) sold Rs1.2 trillion worth of T-bills, exceeding its target of Rs900 billion and covering the maturity of Rs1.3 trillion.

“In today's T-Bill auction, participation of Rs2 trillion was seen with the government raising Rs1.2 trillion as against the target of Rs900 billion and maturity of Rs1.3 trillion,” said brokerage Topline Securities.

T-bill yields, according to analysts, reduced marginally two days prior to the release of November's inflation data, indicating a decline in optimism that the State Bank of Pakistan would begin monetary policy easing sooner than initially anticipated given the likelihood of rising consumer price pressures. Analysts expect CPI inflation to clock in at 28-29 percent in November, compared with 26.9 percent in the previous month. "Looks like the market expecting a rate cut in January/February due to gas prices led to higher inflation," said Muhammad Sohail, the CEO of Topline Securities. "Once again more interest was seen in one-year paper as investors want to lock investment at the higher rate."

Analysts were expecting the T-bill target to be easily met; now, the emphasis is on the cut-off yields.

"Expectations for an interest rate cut in December 2023 have tempered following higher-than-expected CPI numbers," said Chase Securities in a market note. Analysts expect CPI inflation to clock in at 28-29 percent in November, compared with 26.9 percent in the previous month. Since September 2021, the SBP has sharply increased interest rates by 15 percentage points to 22 percent to control high inflation.

Markets and experts will also be watching how the SBP will incorporate the economic recovery into its monetary policy decision at the policy review meeting on December 12.

According to the National Accounts Committee (NAC), Pakistan's gross domestic product grew 2.13 percent in the first quarter of the current fiscal year. This is viewed by analysts as a positive development that heralds the start of an economic rebound, which would be mainly driven by the country's thriving agriculture sector.