The latest jump in threshold yields on 3 to 12 month sovereign paper – treasury bills – suggests that the benchmark interest rate and inflation are close to a “peak” and that economic activities are likely to pick up. accelerate in Pakistan.
Threshold yields on 3-12 month treasury bills were higher than those on longer-term securities such as 3-10 year Pakistan Investment Bonds (PIBs). This is an unusual situation.
“Inverse yields (higher on short-dated papers than on long-dated papers) strongly signaled that the inflation reading and the benchmark interest rate are about to ‘peak,'” he said. said Arif Habib Limited (AHL), Head of Research, Tahir Abbas. said in a chat with The Express Tribune.
With a recent jump of 40 to 55 basis points (bps), the limit yield on 3-12 month Treasuries jumped from 12% to 12.7% compared to 11.74 to 11.85% for GDPs of 3 to 10 year Bonds ‘ saved in auction held on March 16th.
As a reminder, the central bank revised the benchmark interest rate upwards by a total of 275 basis points between September and December 2021 to 9.75%. It left the rate unchanged for the second time in the current month of March.
On the other hand, monthly inflation fell to 12.2% in February from a two-year high of 13% in the previous January.
“The inflation reading should be around 12% for the month of March,” Abbas projected.
“The lower inflation reading may encourage the central bank to again leave the benchmark interest rate unchanged at 9.75% and, if necessary, the rate hike will be gradual within a range of 25 to 50 basis points at the Monetary Policy Committee (MPC) meeting is scheduled to take place on April 19.
The government has subsidized and fixed the prices of petrol, diesel and electricity until June 30, 2022. “This will help keep inflation relatively low, at around 12% in March,” said he declared.
The price fixing of petroleum products, however, continued to weigh on the rupee-dollar exchange rate, as demand for dollars remained high for the import of petroleum products at prevailing high prices.
The rupiah hit a new all-time low at Rs 181.73 against the US dollar in the interbank market on the last business day.
Pak-Kuwait Investment Company research director Samiullah Tariq estimated that the rate would remain unchanged or nominally increase after a significant reduction of around 80% in the current account deficit in February from the all-time high recorded in the month of previous January. 2022.
“Reducing the current account deficit has improved Pakistan’s (international) balance of payments.”
Private sector commercial banks continued to charge the government a higher lending rate after the central bank closed its doors on the government to borrow from it.
“Government borrowing from the central bank causes inflation in the economy,” he said.
KASB Securities’ head of research, Yousuf Rahman, however, said commercial banks continued to raise the cost of lending to the government on the expectation that the central bank would revise the interest rate upwards from benchmark next month as international crude oil prices rebound. would keep inflation high.
The government borrowed a total of 693.5 billion rupees by auctioning three, six and 12 month treasury bills to commercial banks against a target of 800 billion rupees. The government acquired funding 40 to 55 basis points higher on Tuesday.
International crude oil prices rebounded to $115 a barrel after the collapse of the Russian-Ukrainian war, against expectations of a quick resolution to the conflict.
“The price of oil is expected to remain on the rise for the next five to six months,” he said.
Published in The Express Tribune, March 24and2022.