Cut-off yield on 12-month papers edges up

KARACHI: Cut-off yield on longer tenor treasury bills trended upwards at Wednesday’s auction, largely on expectations that interest rates are likely to see a smaller cut in the coming days amid rebounding oil prices, data released by State Bank of Pakistan showed.

The government raised a total of Rs391 billion by selling Market Treasury Bills (MTBs) at the auction.

As per central bank data, the cut-off yield on three-month paper decreased one basis points to 8.39 percent, while its auction fetched Rs136 billion.

On the other hand, the yield on six-month treasury bills remained unchanged at 8 percent and the government raised Rs149 billion through its auction.

The cut-off yield on 12-month paper, however, increased 28 basis points to 7.75 percent, drawing Rs106 billion.

Analysts said with rising global oil prices market now expecting a lesser fall in interest rates.

“The central bank may further ease monetary policy soon, maybe this month, to relive pressure on borrowers and aid economy sickened by coronavirus pandemic. But the rate cut couldn't be much higher,” one analyst said.

The fourth rate cut maybe a last such intervention by the State Bank of Pakistan to cushion the economic impact of the coronavirus pandemic.

The SBP slashed its benchmark policy rate by 425 basis points (bps) to 9 percent since March 17; however, some analysts see further decline in inflation. "The recent cut in fuel prices would further ease inflation going forward; we see room for at least another 100bps rate cut,” said an analyst at Alfalah Securities.