SBP’s Pakistan Investment Bonds auction raises PKR 384.7 billion amid declining yields

The State Bank of Pakistan (SBP) raised PKR 384.7 billion in Wednesday's Pakistan Investment Bonds (fixed) auction, surpassing the target of PKR 350 billion.

The cut-off yields across different tenors decreased by 19-56 basis points, with yields now ranging between 11.90% and 12.80%.

Inflation in Pakistan is showing a significant downward trend, with headline inflation projected to ease to 3.06% in January, marking the lowest level in nearly nine years.

This follows a year-on-year inflation rate of 4.1% in December, which was already an 80-month low.

An analyst at Arif Habib Limited noted that the real interest rate is projected to reach 9.98% in January, significantly higher than its historical average of approximately 2.5%.

Additionally, the historical spread between the policy rate and core inflation has averaged around 1.7% over the past nine years. These indicators suggest that the SBP has substantial room for further rate adjustments.

Given the current economic conditions, a 100 basis points rate cut is anticipated in the upcoming monetary policy meeting in January, which would bring the policy rate down to 12%.