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

Cut-off yields across different tenors decreased by 19-56 basis points

SBP’s Pakistan Investment Bonds auction raises PKR 384.7 billion amid declining yields
Pakistan government bonds declined steeply due to easing inflation
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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%.

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