KARACHI: Yields on fixed-rate Pakistan Investment Bonds (PIBs) fell on Wednesday after the central bank cut its benchmark interest rate by 100 basis points (bps) to 19.5 per cent due to cooling inflation and improvements in external account.
In a fixed-bond PIB auction, the government raised Rs273 billion against the target of Rs125 billion and maturity of Rs429 billion.The cut-off yield on a three-year bond decreased by 36bps to 16.25 per cent. The yield on five-year PIBs fell by 15bps to 15.3 per cent. However, the bids for a 10-year paper were rejected by the government. The SBP slashed rates for the second time in a row on Monday. This decision was widely anticipated by markets and analysts. With this move, the rate has been lowered by 250bps overall since the last meeting in June.
“The SBP expects inflation to remain in the range of 11.5-13.5 per cent, suggesting that the interest rate cut cycle may have just begun, with further reductions anticipated in upcoming meetings,” said Chase Securities in a note.
The SBP’s monetary policy committee (MPC) noted that inflation in June 2024 was slightly better than expected. The committee also evaluated that the inflationary impact of the FY25 budgetary measures was largely in line with earlier expectations. The external account has continued to improve, demonstrated by an increase in the SBP’s foreign exchange reserves despite substantial debt repayments and other obligations. “Considering these developments -- along with significantly positive real interest rate -- the committee viewed that there was room to further reduce the policy rate in a calibrated manner to support economic activity while keeping inflationary pressures in check,” the SBP said in a statement.
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