Karachi: The cut-off yields on treasury bills (T-bills) have been slashed again by up to 44 basis points (bps) reflecting the possibility of an interest rate cut in the upcoming monetary policy review.
The State Bank of Pakistan reported on Wednesday that the cut-off yield was slashed by 44bps to 6.88 per cent on three-month T-bills, by 41bps to 6.88pc on six-month and by 33bps to 6.89pc on 12-month papers.
The T-bills were traded at 1.12pc below the policy interest rate, which was slashed by 50bps to 8pc in March 2015, leaving a wide option for the SBP to introduce another cut in its next monetary policy statement.
The government raised Rs85.6 billion through the auction of T-bills against the target of Rs100bn.
The government, which has been trying to reduce its fiscal deficit, kept borrowing heavily from the banking system.
During the first 10 months of this fiscal year, it borrowed record Rs1,290bn from the scheduled banks. It retired Rs579bn debt of the State Bank during the same period.
However, the government is determined to show a low fiscal deficit this year despite high borrowing while the Standard and Poor’s has also endorsed the efforts for consolidation of fiscal management.
The rating agency said Pakistan’s fiscal performance has exceeded its expectations for 2014, with the budget deficit now estimated at 4.5pc of GDP in 2015 compared with earlier forecast of 5.5pc.
The government is trying to resolve the issue of Rs600bn circular debt in a way to avoid its impact on fiscal deficit.
In FY14, the government did not clear the circular debt which substantially kept the fiscal deficit at low level.
According to the rating agency’s forecast, Pakistan’s fiscal deficit to average 3.5pc of GDP over 2016-19.
Most of analysts in their reports believe that the fiscal deficit would remain within the estimated range this year, while they see interest rate cut by 50bps in next monetary policy.
“Due to improved inflation outlook, we anticipate that State Bank will cut policy rate by 50bps to 7.5pc in 2015,” said a report of Topline Securities.
