KARACHI: The government surpassed the target and raised significantly more funds than the maturity amount through an auction of treasury bills on Wednesday.

Notably, the cut-off yields on the T-bills remained unchanged, despite expectations that declining inflation would allow the government to borrow at a cheaper rate.

In March, inflation fell to a nearly two-year low of 20.7 per cent, indicating a declining trend that could prompt the State Bank of Pakistan (SBP) to cut the record-high 22pc policy interest rate. However, the latest T-bill rates suggest the future interest rate trend.

The government raised Rs82.7 billion for three-month bills at 21.66pc, Rs13bn for six-month bills at 21.31pc, and Rs442bn for 12-month bills at 20.84pc.

T-bill auction exceeds target, high borrowing persists

The government raised Rs538bn against the Rs525bn target for this auction; however, the maturity amount was just Rs173bn. This indicates that the government is borrowing more than the required amount, resulting in increased public debt, with debt servicing consuming a significant portion of the country’s generated revenue.

Analysts and experts anticipate a rate cut in the upcoming monetary policy scheduled for April 29, but the decision to maintain cut-off yields at 21.6pc reflects the SBP’s cautious approach. A senior analyst said high inflation projections, averaging around 25pc for FY24 according to the IMF, may deter the SBP from reducing interest rates, as seen in the previous monetary policy in March.

Persistently high interest rates have stifled economic growth, drawing criticism from the trade, industry and agriculture sectors. These sectors contend that the expensive money inflates the cost of doing business, exacerbating inflationary pressure. Some bankers said the central bank’s policies have failed to counter inflation and are responsible for the poor economic growth rate.

The World Bank estimates 2pc GDP growth for FY24. Many in the financial market doubt this figure, as most economic sectors are facing high costs. Exporters are advocating for a reduction in interest rates, as they have become uncompetitive in international markets due to the high cost of production.

Published in Dawn, April 18th, 2024