Treasury bill yields ease; rate cut hopes alive

KARACHI: Treasury bills yields, in line with the market expectations, inched down at an auction on Wednesday and dealers said the result rekindled hopes of monetary easing in the third quarter of the current fiscal year.

The cut-off yield on three-month paper fell to 13.53 percent from 13.59 percent in previous auction held on November 20. The State Bank of Pakistan (SBP) sold Rs156.85 billion worth of shortest-tenor government securities.

The yield on benchmark six-month treasury bills stood almost unchanged at 13.28 percent. The SBP sold Rs5.88 billion worth of this paper. The yield on 12-month paper eased to 13.14 percent from 12.25 percent, while the central bank sold Rs183.85 billion worth of T-bills.

The central bank sold Rs346 billion worth of treasury bills, while the auction saw participation amounting to Rs1.147 trillion. The target for the auction was Rs300 billion.

Analysts said treasury bills are attracting foreign inflows since July when interest rates hit a peak of 13.25 percent. The latest data issued by SBP shows the country received $1.097 billion investment in T-bills from July 1 to November 19.

Analysts increasingly see the central bank inching towards a rate cut on the back of recent mixed set of economic data.

They said the macroeconomic data releases since the previous MPC meeting, held earlier this month, have been mixed, with positive developments on external and fiscal fronts, but disappointments on growth and inflation tracks. The central bank left the policy rate unchanged at 13.25 in its last policy meeting.

Consumer inflation picked up at the fastest pace in nearly 8 years in November to 12.67 percent year-on-year on high food prices, showing a breach in the central bank’s target range of 11-12 percent.

"Inflation for the year will likely remain in line with SBP (State Bank of Pakistan) forecast despite higher than expected inflation date for the month of November,” said Saad Hashmi, an executive director at BMA Capital.

“We continue to expect interest rates to reduce in 2020 where we see policy rate at 12 percent by December compared to 13.25 percent now."

On positive side the country posted $99 million current account surplus in October after a gap of more than four years indicative of the recovery from long-prevailing deficits. The foreign exchange reserves have continued to inch up, helped by surging foreign portfolio investments inflows into government securities.

Moreover, the government has recorded a primary fiscal surplus of 0.01 percent in first quarter of current fiscal year, helped by one-off receipts and tighter expenditure control.