Moaaz Manzoor

The State Bank of Pakistan’s successful PIB auction, with reduced borrowing costs and strong investor demand, signals improved market confidence and potential for a rate cut, reports WealthPK.

The central bank raised Rs384.7 billion in its Pakistan Investment Bonds (PIBs) auction, surpassing the Rs350 billion target. Total bids hit Rs1,568 billion, with cut-off yields dropping 19-56 bps to 11.90%-12.80%. Yields for 2-, 3-, and 5-year bonds fell, while the 10-year yield stayed unchanged. The lower yields signal reduced borrowing costs and growing investor confidence in Pakistan's debt market and fiscal policies.

Speaking with WealthPK, Ali Najib, Head of Equity Sales at Insight Securities, commended the auction’s performance, noting that the SBP raised Rs384.7 billion, well above the Rs350 billion target, with bids reaching an impressive Rs1,568 billion. This oversubscription reflects heightened investor interest in government debt instruments. Najib emphasized that the significant decline in cut-off yields, ranging from 19 to 56 bps, had reduced the borrowing costs for the government, with the current yields ranging between 11.90% and 12.80%.

He attributed this outcome to the increased optimism about economic stability, which could ease fiscal pressures and improve government finances. Najib suggested that these developments might create room for an interest rate cut in the upcoming monetary policy, potentially driving further economic momentum. Syed Zafar Abbas, General Manager at Zahid Latif Khan Securities, pointed out that the real interest rates could surpass 10%, potentially reaching their highest levels in recent years.

While he acknowledged that the market conditions could support a rate cut in the upcoming monetary policy meeting, Abbas cautioned that any reduction this month would likely be modest, given the current economic landscape. The success of the PIB auction and the subsequent decline in yields are signs of increased investor confidence in Pakistan’s financial markets.

With a strong demand for government securities, these developments suggest that Pakistan’s fiscal health is strengthening, which could lead to more favorable economic conditions in the coming months. The potential for a rate cut and improved borrowing conditions highlight a positive outlook for Pakistan’s economic recovery and growth.

Credit: INP-WealthPk