Govt raises Rs131bn through PIBs’ sale, yields fall by 4-5 bps

KARACHI: The government raised Rs131 billion from the auction of fixed-rate Pakistan Investment Bonds (PIBs) on Tuesday, with yields falling on three- and 10-year papers.

The raised amount was lower than the original target of Rs190 billion.The cut-off yield on a three-year PIB fell by four basis points (bps) to 16.6 per cent. However, the yield on a five-year paper ended at 15.45 per cent, unchanged from the previous auction. The yield on a 10-year paper dropped by 10 bps to 14.25 per cent.

Analysts said the yields continue to decline in secondary markets in anticipation of lower consumer price index inflation numbers for June. Attention is now focused on the budget passing through the National Assembly, which is in session until June 28, 2024. If the budget is passed this week, the new finance act will take effect from July 1, 2024.

The State Bank of Pakistan (SBP) reduced its key interest rate by 150 bps to 20.5 per cent on June 10 after inflation pressures significantly eased in the country.Headline inflation has considerably decreased since the start of 2024 because of a large base effect and a discernible drop in wheat prices.

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 because 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 FY2024, inflation will hover around 23–25 per cent.

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.“We expect inflation and interest costs to decline in tandem, with economic growth and primary surpluses driving government debt/GDP gradually lower,” said Fitch Ratings in a report last week.Fitch forecasts FY25 inflation at 12 per cent, and the FY25 policy rate at 16 per cent.