T-bills’ yields drop by 50-54 bps

KARACHI: The government raised Rs355 billion through the auction of market treasury bills on Wednesday, with yields falling across the board.The raised amount was higher than the pre-auction target of Rs210 billion.

The cut-off yield on a three-month T-bill dropped by 52 basis points (bps) to 18.98 per cent. The yield on a six-month paper fell by 54bps to 18.75 per cent. The yield on one-year paper decreased by 50bps to 17.74 per cent. In the latest T-bill auction, participation of Rs1,778 billion was seen with the government raising Rs355 billion as against the target of Rs210 billion and maturity of Rs205 billion.

Analysts said yields have fallen higher than expected.The State Bank of Pakistan cut its benchmark interest rate by 100bps to 19.5 per cent last month. It slashed rates for the second time in a row. With this move, the rate has been lowered by 250bps overall since the last meeting in June.

The Consumer Price Index (CPI) for July stood at 11.1 per cent This figure was within expectations and significantly lower than the current policy rate, thus widening real interest rates.The SBP expects inflation to remain in the range of 11.5 per cent to 13.5 per cent in FY2025, suggesting that the interest rate cut cycle may have just begun, with further reductions anticipated in upcoming meetings.

The SBP’s monetary policy committee (MPC) noted that inflation in June 2024 was slightly better than expected. The committee also evaluated that the inflationary impact of the FY25 budgetary measures was largely in line with earlier expectations.

The external account has continued to improve, demonstrated by the increase in the SBP’s foreign exchange reserves despite substantial debt repayments and other obligations.“Considering these developments -- along with significantly positive real interest rate -- the committee viewed that there was room to further reduce the policy rate in a calibrated manner to support economic activity while keeping inflationary pressures in check,” the SBP said in a statement.

The committee evaluated that, even with this decision, the monetary policy stance remains sufficiently stringent to steer inflation towards the medium-term target of 5-7 per cent. However, this is contingent on achieving the intended fiscal consolidation; timely realization of planned external inflows; and addressing the underlying weaknesses in the economy through structural reforms.