T-bill yields steady as market awaits SBP rate decision

KARACHI: The yields on Treasury bills (T-bills) were mostly flat on Wednesday as traders awaited the central bank’s policy meeting scheduled for next week.

The yield on the three-month T-bill held steady at 11.82 per cent, while the yield on the six-month T-bill decreased by one basis point to 11.67 per cent. Similarly, the yield on the 12-month T-bill also fell by one basis point to 11.64 per cent.

In the recent T-bill auction, the government aimed to raise Rs700 billion against a maturity of Rs946 billion but ultimately raised Rs569 billion. This attracted a total of Rs1.237 trillion in participation, according to the State Bank of Pakistan’s (SBP) auction results.

The SBP’s Monetary Policy Committee meets on Monday. Uncertainty surrounding whether the SBP will deliver a significant rate cut or adopt a cautious approach has prevented traders from making significant bets. Analysts said the central bank has room for a further rate cut of approximately 100bps. However, due to persistently high core inflation, a current account deficit and the ongoing review of a $7 billion loan programme from the International Monetary Fund (IMF), most analysts and market participants are anticipating a 50bps reduction in interest rates. If realised, this would be the seventh consecutive rate cut by the SBP, which has slashed rates by 1,000bps since June 2024.

Some analysts believe the SBP may decide to maintain its benchmark interest rate at 12 per cent. Market participants are closely monitoring whether the review will be approved despite a notable tax shortfall. If cleared and subsequently approved by the IMF’s board, this review could unlock a $1 billion tranche of funding for cash-strapped Pakistan ahead of its annual budget, typically presented in June.

Saad Hanif, head of research at Ismail Iqbal Securities, expects a 50bps cut in rates at the March 10 policy meeting, with a cautious stance afterward, as inflation may resurface after May when the base effect begins to decrease.

“However, inflation is estimated to remain single digit if we see the full year number. Despite some shocks in months due to a lower base,” Hanif added. Pakistan’s annual inflation rate slowed to 1.5 per cent in February, the lowest level in nearly a decade, from 2.4 per cent in the previous month.