KARACHI: Exceeding the Rs450 billion treasury bills auction target, the government raised Rs640 billion on Wednesday but reduced the cut-off yields for different tenors by up to 49 basis points.

However, it received bids amounting to over Rs1.8 trillion, reflecting the investors’ willingness to park their maximum liquidity in risk-free government papers, mainly when the investment environment is not conducive.

In its half-yearly report released on Tuesday, the State Bank of Pakistan (SBP) blamed political uncertainty and inconsistent policies for the current poor economic situation.

The government has been borrowing vigorously from banks despite higher revenue collection so far this fiscal year.

Borrowings from banks surge to Rs6.2tr in 10 months

Another SBP report on Wednesday showed that government borrowing from banks more than doubled to Rs6.196 trillion during July-April FY24, compared to Rs2.97tr in the same period last year.

However, the government is contemplating imposing new taxes in the upcoming budget to increase revenue collection and reduce its fiscal deficit.

The central bank reported that the cut-off yields on three-month and six-month T-bills were reduced by six basis points each, while the rate for 12-month tenor was cut by 49bps.

The financial market and other stakeholders had anticipated a cut in the SBP policy rate at its monetary policy review meeting on April 30. Still, the central bank left the rate unchanged at 22pc despite a significant deceleration in inflation to 20.7pc.

In May, inflation is expected to be between 13 and 15 percent, providing room for the interest rate cut. The CPI-based inflation in March was 17.3 percent. In a recent review of Pakistan’s economy, the IMF endorsed the status quo in the interest rate, describing it as good for the economy.

Finance Minister Mohammad Aurangzeb also has recently said a rate cut is possible in June or July.

The latest half-yearly SBP report said the average inflation for FY24 would be 23 to 25pc, which means there is no chance of a cut in the next money policy, which is expected at the end of June.

Analysts believe that cutting the interest rate before the announcement of the budget 2024-25 in early June is not possible, particularly when the IMF supports keeping the interest rate unchanged.

The economic team led by the finance minister is negotiating with the IMF for another loan. Wall Street Bank Citi has recently said that Pakistan may receive an $8bn loan from the IMF in July.

Published in Dawn, May 16th, 2024