Pakistan slashes Naya Pakistan Certificates profit rates

The Pakistan government has reduced the rate of profit on the Naya Pakistan Certificates effective from Feb 20, following continued easing of the policy rate.

According to information received from the federal government, the profit rate on rupee-denominated Naya Pakistan Certificates has dropped in the range of 500-850 basis points (bps).

The three-month certificate recorded a drop of 750bps to 13.50%, six-month by 775bps to 13.50%, one-year by 850bps to 13.00%, three-year by 500 bps to 12.50% and five-year by 250 bps to 12.50%.

In the foreign exchange currency segments, the government cut the rate of profit by 25-175 bps. For US currency purchases, the rate for three-month Naya Pakistan Certificates dropped by 125bps to 7%, six-month by 150bps to 7%, 12-months by 200 bps to 7%, three-year by 50 bps to 7.50% and five-year by 50 bps to 7.50%.

In UK pound segment, profit rates for three months, three years and five years remained unchanged at 7.25%, 7.50% and 7.50%, respectively.

In the Euro currency segment, the rate of profits declined in the range of 100-175 bps.

The rate of profit for three-month Euro-denominated Naya Pakistan Certificates dropped to 5.25% — cut by 100 bps — while rates on six-month, three-year and five-year tenors saw a decline of 125bps each to 5.25% respectively. Meanwhile, the profit rate for the 12-month tenor was down by 175bps to 5.25%.

The main reason behind this massive trimming has been continuous monetary easing from the State Bank of Pakistan. The central bank cut the interest by 1,000bps to 12%. The interest rate has now reached an almost three-year low because of cooling down of the inflation rate.

Inflation had reached a record 38% in May 2023. However, it started declining steeply in March las year, with inflation clocking in at a nine-year-low of 2.4% in January. This has brought the real interest rate in single digit to around 9.6%.

Analysts were of the view that there is a possibility that the central bank might adopt a cautious approach at the next monetary policy announcement in March, while a few believed that there might be a 50bps cut.

The main reason behind a cautious approach would be due to January's current account which landed in the negative zone marking a deficit of $420 million, while in seven months the current account has posted a surplus of more than $600 million

Moreover, another factor has been rupee depreciation. From the start of February, the PKR has lost nearly 50 paisas to reach 279.46 against the dollar in the interbank market. It has dropped by Re 1 to trade at PKR 281.20 in the open market.