Karachi, April 3, 2024 – The State Bank of Pakistan (SBP) made waves in the financial market on Wednesday as it conducted a highly successful auction, selling treasury bills worth a staggering Rs 558 billion.
The SBP revealed that the figure surpassed 148 percent the target of Rs 225 billion initially set for the auction of treasury bills. The result is showcasing strong investor demand and confidence in Pakistan’s financial stability.
The auction results revealed interesting trends in the market. The cut-off yield on the three-month T-bill remained steady at 21.6601 percent, maintaining the level from the previous auction held on March 20. However, the six-month yield witnessed a notable increase of 101 basis points (bps) to reach 21.3999 percent. On the other hand, the yield on the 12-month paper remained unchanged at 20.8998 percent.
Analysts at Chase Securities attributed the slight adjustment in cutoff yields during the previous auction to the absence of an interest rate cut in the monetary policy. However, recent weeks have seen a remarkable development with the influx of hot money into the Pakistani market, amounting to $126 million by March 22, 2024.
Foreign investors are increasingly drawn to Pakistan’s stable currency, attractive high yields, and the potential for future rate cuts, according to market experts. The anticipation of local bids competing with foreign bids at the auction was high, reflecting the growing interest of foreign investors in expanding their T-bill holdings.
Pakistan’s inflation rate saw a significant decline to 20.68 percent in March, marking the lowest level in almost two years. This downward trend can be attributed to higher borrowing costs, which have restrained domestic demand and economic growth.
The SBP’s decision to maintain its benchmark interest rate at a record 22 percent for the sixth consecutive meeting on March 18 has played a pivotal role in stabilizing the financial landscape. Since September 2021, the central bank has implemented a cumulative 15 percentage points hike in interest rates to counter soaring inflation.
Market analysts interpret the March inflation figures as indicative of a positive real interest rate both presently and in forward projections. Despite concerns over a recent spike in fuel costs, the significant high base effect suggests that inflation is likely to decrease in the upcoming months. Consequently, expectations are mounting for a potential rate cut in the next review of monetary policy scheduled for April 29.
As Pakistan navigates through economic challenges, the successful treasury bill auction underscores investor confidence in the country’s financial resilience and the SBP’s prudent monetary policies. With foreign investors increasingly eyeing Pakistan’s market, the stage is set for further developments in the financial landscape, signaling potential opportunities for growth and stability in the months ahead.
