KARACHI: The State Bank of Pakistan (SBP) on Wednesday slashed treasury bill (T-bill) yields by up to 39 basis points, signalling possible room for a policy rate cut in the upcoming monetary policy meeting scheduled for July 30.

Despite maintaining the benchmark interest rate at 11pc since May, the central bank’s latest T-bill auction reflects a shift in market sentiment, with expectations rising for monetary easing amid falling inflation and modest economic growth.

The cut-off yield for 1-month T-bills dropped by 39bps to 10.85pc from 11.24pc. Yields for 3-, 6-, and 12-month papers were also lowered — by 29bps to 10.99pc, 19bps to 10.89pc, and 10bps to 10.80pc, respectively.

The moderation in inflation has further fuelled speculation of an interest rate cut. Headline inflation stood at 3.2pc in June and is expected to range between 3pc and 3.5pc year-on-year in July — down significantly from 11.1pc in July 2024.

SBP’s monetary policy meeting scheduled for 30th

Amid this soft inflation outlook, the government is keen to stimulate GDP growth, which remained at a modest 2.6pc in FY25. Economists argue that such low growth is inadequate for a country where an estimated 47pc of the population lives below the poverty line. The FY26 budget did little to address this challenge.

Analysts believe that a rate cut could help spur economic activity by making borrowing cheaper and encouraging investment in industry, trade, and agriculture — especially with a relatively stable exchange rate environment.

A poll conducted by Topline Securities showed that 56pc of market participants now expect a 50-100bps cut in the upcoming monetary policy, up from 44pc in the previous survey. Meanwhile, 37pc anticipate no change, down from 56pc in the last meeting.

In the previous Monetary Policy Committee (MPC) meeting, the SBP had held rates steady at 11pc, citing uncertainty surrounding the federal budget and elevated global oil prices amid the Iran-Israel conflict.

However, in its latest outlook, Topline Securities stated: “We believe the SBP has further room of around 100bps for a cut, with FY26 inflation expected to average between 5-7pc. This would translate into a real interest rate of 400-600bps, significantly above the historical average of 200-300bps.”

The report added that while room exists, monetary easing would likely be gradual, with a 50bps cut expected in the upcoming MPC meeting.

The latest T-bill auction saw total participation of Rs1.058tr. The government raised Rs409bn — more than double the Rs200bn target —against maturities of Rs361bn.

Published in Dawn, July 24th, 2025