T-bill yields fall as SBP rate hold hopes grow

KARACHI: Market Treasury Bills’ yields dropped on expectations that the central bank would leave interest rates unchanged on Monday due to easing inflation pressures and economic slowdown caused by catastrophic floods.

The cut-off yield on three-month paper fell by 26 basis points (bps) to 15.7389 percent, according to the auction result issued by the State Bank of Pakistan late Wednesday.

The yield on the six-month T-bill decreased by 25 bps to 15.7498 percent. The yield on 12-month paper fell by 24 bps to 15.7500 percent.

“After a gap of two months T-Bill auction witnessed a drop in cut-off yields in today’s auction,” said Mohammed Sohail, CEO at Topline Securities on his official Twitter handle.

“Lower than anticipated September CPI (consumer price index) numbers and expectations of no change in policy rate made investors accumulate T-Bills at lower than last auction yield. Yields fell by 24-26 basis points in the auction. Against a target of Rs650 billion, the government picked Rs877 billion,” Sohail added.

The SBP’s Monetary Policy Committee (MPC) is expected to keep the benchmark interest rate steady at 15 percent at a meeting on Monday. September’s inflation reading prompted this expectation of no change in the policy rate, with the CPI falling to 23.2 percent year-on-year from 27.3 percent in August. This decline is driven by the reduction in electricity charges.

The SBP has raised the policy rate by 525 basis points since the start of 2022 to combat skyrocketing inflation and to curtail import bill. Some analysts believe that interest rates have reached their peak or are near their peak.

Most analysts see CPI inflation easing further in the coming months. Average inflation is expected to be in the range of 19-21 percent this fiscal year. The SBP forecasts inflation at 18-20 percent for the fiscal year 2022-23.