Following the regulator’s most recent Treasury Bills (T-Bill) auction, which saw the government raise Rs. 1.3 trillion in domestic debt at extortionate rates as high as 25.06 percent, the Monetary Policy Committee of the State Bank of Pakistan (SBP) is strongly expected to increase the policy rate by at least 200 basis points to 24 percent.
According to official data, the three-month T-bill cut-off yield increased from the 22.88 percent observed on August 23 to 24.49 percent, an increase of 162 basis points. Similar to this, the proceeds for the six-month paper were raised at a rate of 24.78 percent, and the yield on the 12-month paper increased by 213 basis points (bps) from the previous auction’s 22.94 percent to 25.06 percent.
Data show that financial institutions (commercial banks) have raised lending costs (cut-off yield) to pro-inflationary levels, which has fueled expectations that the central bank will raise its benchmark policy rate by another 200 basis points to an all-time high of 24 percent at the upcoming monetary policy meeting on September 14, 2023.
To cover rising expenses, such as interest payments on the outstanding debt, the government planned to borrow Rs. 1,950 billion on Wednesday through the auction of sovereign debt securities to commercial banks. The government received Rs. 1,292 billion from the competitive auction and Rs. 40 billion from non-competitive bids, for a total of Rs. 1,332 billion at expensive lending rates as high as 25.06 percent, according to the results of both competitive and non-competitive bids.
In response to yesterday’s T-Bill auction, the central bank is already preparing to increase the benchmark lending rate by 2%, according to knowledgeable sources. They claimed that the new rate is already being priced in given the circumstances. Fresh debt auctions on Wednesday have joined other indicators in raising concerns about rising borrowing costs in the domestic financial markets. One of them continued, “The response to the upcoming MPC is as obvious as day.
