Govt raises Rs1.2tr through T-bills, yields drop by 85-115 bps

KARACHI: The government raised Rs1.208 trillion from the auction of market treasury bills at an auction on Wednesday, with yields falling across the board.

In the latest T-bill auction, participation of Rs2.188 trillion was seen, with the government raising Rs1.208 trillion as against the target of Rs780 billion and maturity of Rs810 billion. Yields on three-, six-, and 12-month bonds fell by 85-115 basis points (bps).

The yield on a three-month T-bill decreased by 85 bps to 20.15 per cent. The yield on a six-month paper also declined by 103 bps to 19.97 per cent. The yield on a 12-month note dropped by 115 bps to 18.95 per cent.

This auction was the first to take place after a 150 basis point rate cut on Monday. The secondary markets have already adjusted to the new policy rate, and the analysts anticipated reasonable participation and a decrease in yields, driven by the positive tone of the monetary policy statement. This suggests the beginning of a monetary easing cycle.

The State Bank of Pakistan reduced its key interest rate by 150 bps to 20.5 per cent on Monday after inflation pressures significantly eased in the country.Because of a large base effect and a discernible drop in wheat prices, headline inflation has considerably decreased since the start of 2024.

The SBP in a monetary policy document noted that “there are still some upside risks to the near-term inflation forecast, citing the possibility of a sharp increase in inflation in July as a result of impending budgetary measures and uncertainty around potential future adjustments to energy prices.”

However, it pointed out that the earlier monetary tightening’s cumulative effect is anticipated to contain inflationary pressures. The SBP projects that, for the fiscal year 2024, inflation would hover around 23-25 percent.

Assuming no shocks in food prices and a stable currency, there is ample room for the central bank to further cut rates while keeping real rates positive, according to analysts.Analysts expect that the central bank will further reduce rates by 250-300 bps during the remaining part of 2024.

The timing of further rate cuts remains uncertain, as the government is currently in discussions with the IMF. The outcome of these discussions will play a crucial role in determining the future path of inflation.