Govt raises Rs527bn in T-bill auction, short-term yields fall

KARACHI: The government raised Rs 527 billion through the auction of market treasury bills on Wednesday, exceeding its target by more than double, as investors bet on a possible interest rate cut amid easing inflation.

The State Bank of Pakistan (SBP) had set a target of Rs 225 billion for the auction but received bids worth Rs 1.2 trillion. The cut-off yield on the three-month T-bill fell by 30 basis points to 21.4002 percent, while the six-month yield remained unchanged at 20.3949 percent. The yield on the 12-month paper dropped by 3 basis points to 20.2998 percent.

The lower yields on shorter-duration paper reflected the market's expectation of a rate cut in the near future, as inflation eased to 23.1 percent in February, the lowest level in 20 months, from 28.34 percent in January.

The SBP, which has kept the policy rate at 22 percent in its last five policy meetings, will hold its next monetary policy meeting on March 18. The central bank has raised its benchmark interest rate by a cumulative 15 percentage points since September 2021 to curb sky-high inflation. The policy rate has stayed at record levels since June 2023.

Some analysts expect the central bank to make a substantial cut in the interest rate at the next policy meeting, as the downward trend in inflation is likely to continue beyond March. However, others are more cautious, citing the uncertainty over the next IMF bailout program as any delay could bring pressure on the currency.

Topline Securities, quoting the management of Habib Bank Limited (HBL), said the policy rate would remain unchanged at the upcoming meeting. "Management is of the view that although the recent inflation number supports a rate cut, the MPC (Monetary Policy Committee) will wait and see before making a decision on a rate cut. Management expects an interest rate cut in April 2024," it said in a note. "By the end of the calendar year 2024, management expects the interest rate to be **17-17.5 percent."