Foreigners pull net $32m out of T-bills amid low interest rates

KARACHI: Pakistan saw a net outflow of $32.4 million from Treasury bills as of January 24, primarily due to a significant reduction in interest rates. Analysts have warned that declining returns on T-bills, coupled with initial signs of the rupee’s depreciation, may diminish foreign interest further in Pakistani bonds.

Foreign investors poured $117.1 million in T-bills but withdrew $149.5 million, resulting in a net outflow of $32.4 million, the central bank data showed on Monday.

For the current fiscal year, covering the period from July 1, 2024 to January 24, 2025, foreign purchases of T-bills totalled $1.028 billion, while withdrawals amounted to $880.4 million, leading to a net inflow of $148.2 million.

Last week, the State Bank of Pakistan (SBP) reduced its benchmark interest rate by 100 basis points to 12 per cent, citing declining inflation that allows policymakers to boost economic growth. This latest rate cut has brought the total reduction in borrowing costs to 1,000bps since June 2024.

“The large outflow of $156.1 million in December 2024, followed by $32.4 million in January 2025, marks a shift after months of significant inflows. This likely reflects profit-taking by foreign investors who had built sizable positions earlier in 2024,” said Saad Hanif, head of research at Ismail Iqbal Securities.

“While this reversal could raise concerns, the sharp 10ppt [percentage points] decline in interest rates has also played a role in moderating T-bill attractiveness. Furthermore, initial signs of PKR depreciation may be prompting some investors to reduce exposure, though the currency remains relatively stable for now,” Hanif added.

“Going forward, investor sentiment will likely depend on how the currency trend evolves and whether Pakistan’s interest rate environment remains supportive for carry trade flows,” he said.

Forex reserves saw a decrease in December and January due to high external debt repayments. The SBP’s reserves fell by $76 million, reaching $11.37 billion as of January 24.

The rising imports suggest potential pressure on the currency in the coming months. According to data released by the Pakistan Bureau of Statistics (PBS), the country’s trade deficit widened to $2.313 billion in January, marking an 18 per cent increase, compared with the same period last year. Imports rose by 10 per cent year-on-year to $5.233 billion, while exports increased by 5.0 per cent to $2.920 billion.