KARACHI: The government on Wednesday slashed the cut-off yields on treasury bills and raised less than the auction target even lower than the maturing debt.

The State Bank of Pakistan (SBP) reported that the returns on T-bills have been reduced by up to 50 basis points indicating the future interest rate trend.

It was also observed that unlike the previous trend, the highest bids were received for 12-month papers that too suggesting a possible cut in the SBP policy rate in the next monetary policy review.

The government received total bids of Rs4 trillion with more than half for 12-month tenor. Earlier, the investors, mainly banks, have been investing in the three-month papers.

Govt picks up just Rs1.15tr at auction against maturing debt of Rs2.07tr

At the last review, the State Bank maintained a tight monetary policy stance by leaving the key interest rate unchanged at 22pc.

However, it anticipated a deceleration in inflationary pressures amid improved supplies of commodities with a downward price trend on global markets. The CPI-based inflation slowed to 26.9pc in October against 31.4pc in the preceding month, strengthening expectations of a possible cut in interest rate in the next review.

The unprecedented interest rate has practically discouraged domestic investors from using the costly money for setting up new ventures or expanding existing businesses.

The costly money is also a burden for the government as it has to allocate the largest share of the budget for debt servicing. The increasing debt servicing with the costly borrowing has greatly curtailed the development spending which means low growth and higher unemployment.

At the T-bill auction, only Rs1.161tr was picked against the target of Rs1.5tr. The maturity amount for the auction day was Rs2.073tr which means the government raised much lower than it was required to pay back. It also supports the idea of some analysts that the interest rate would come down in the next monetary policy.

The government raised the highest amount of Rs529 billion for 12-month papers against the bids of Rs2.6tr. The investors were also expecting a cut in the interest rate and were ready to park maximum in the long-term tenor. However, the cut-off yield for the 12-month papers was slashed by 50 basis points to 21.5pc.

The second highest amount of Rs408.7bn was raised for 3-month papers at 21.49pc while the bids received for this tenor were Rs1.045tr. The cut-off yield was reduced by 45bps.

The government raised Rs40.7bn for the benchmark 6-month T-bills at 21.49pc. The rate was slashed by 49bps. The bids for the same tenor were Rs353.7bn.

The government also raised Rs182.2bn through non-competitive bids.

Published in Dawn, November 16th, 2023

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