WEB DESK: Pakistan’s government surpassed its treasury bills auction target, raising Rs640 billion on Wednesday, while simultaneously reducing the cut-off yields for various tenors by up to 49 basis points.
Despite a target of Rs450 billion, the overwhelming response saw bids totaling over Rs1.8 trillion, indicating investors’ preference for risk-free government papers amidst an uncertain investment climate.
In its recent half-yearly report, the State Bank of Pakistan (SBP) attributed the nation’s economic challenges to political instability and inconsistent policies.
Government borrowing from banks has surged, reaching Rs6.196 trillion during July-April FY24, more than doubling from Rs2.97 trillion in the same period last year.
To bolster revenue collection and curb fiscal deficit, the government is contemplating new taxes in the upcoming budget.
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The SBP reported reductions in cut-off yields for three-month, six-month, and 12-month T-bills, fostering expectations of a potential interest rate cut. Despite inflation deceleration to 20.7%, the SBP maintained the policy rate at 22 per cent in April.
With inflation projected to range between 13 and 15 percent in May, there’s speculation for an interest rate cut. However, the IMF, in its recent assessment of Pakistan’s economy, endorsed maintaining the current rate.
Finance Minister Mohammad Aurangzeb suggested the possibility of a rate cut in June or July, although the SBP’s half-yearly report forecasts average inflation for FY24 to be between 23 and 25 percent, potentially delaying a rate adjustment until after June.
Analysts assert that an interest rate cut before the announcement of the 2024-25 budget in early June seems improbable, especially with IMF support for rate stability. Negotiations for an additional IMF loan are ongoing, with Wall Street Bank Citi suggesting a potential $8 billion loan in July.
