In a recent auction, Pakistan’s government increased the cut-off yields on treasury bills (T-bills) by up to 34 basis points, surpassing the current policy interest rate. The auction attracted total bids of Rs1,085 billion against a target of Rs650 billion, with the government raising Rs640 billion. Notably, Rs221 billion was secured through one-month T-bills, Rs210 billion via 12-month papers, Rs105 billion from three-month T-bills, and Rs75 billion from the benchmark six-month T-bills.
This increase in T-bill yields comes despite market expectations of a potential policy rate cut, prompted by a significant decline in inflation. The widening gap between the policy interest rate and inflation has resulted in a real interest rate exceeding 10%. Financial experts suggest that the higher T-bill returns might indicate forthcoming adjustments in monetary policy, potentially influenced by agreements with the International Monetary Fund (IMF).
Additionally, the government is reportedly negotiating with banks to secure loans up to Rs400 billion to address the growing circular debt, aiming for a borrowing rate of 11%, which is one percentage point below the current policy rate. Some banks have shown reluctance to lend at this rate, as it falls below the 12% policy rate.
