Govt raises Rs382 billion in PIB auction, yields decline across maturities

The government raised Rs382 billion through the auction of fixed-rate Pakistan Investment Bonds (PIBs), surpassing its target of Rs350 billion. 

The auction witnessed a decline in yields across all maturities, reflecting market sentiment following recent monetary policy adjustments.

The cut-off yield on the two-year PIB fell by 55 basis points (bps) to 12.5%, while the yield on the three-year bond remained unchanged at 12.49%. For five-year PIBs, the yield declined by 11 bps to 12.59%, and the yield on the 10-year paper dropped by 4 bps to 12.79%.

The auction comes on the heels of the State Bank of Pakistan’s (SBP) decision to reduce its key interest rate by 200 bps to 13% during its monetary policy meeting earlier this week. This marks the fifth consecutive rate cut since June 2024, bringing the cumulative reduction to 900 bps.

The central bank attributed the decision to a continued decline in headline inflation, which stood at 4.9% year-on-year in November, primarily due to lower food inflation and the waning impact of last year’s gas tariff hikes. 

However, the SBP highlighted persistent concerns about core inflation, which remains high at 9.7%, and noted that inflation expectations among consumers and businesses are still volatile.

The SBP’s Monetary Policy Committee (MPC) said in its statement that while inflation may remain volatile in the near term, it is expected to stabilize within the target range. 

The central bank also revised its inflation forecast for FY25, expecting it to fall significantly below the earlier range of 11.5% to 13.5%. A more precise projection is anticipated during the next policy meeting scheduled for January.

Despite the optimistic inflation outlook, the central bank identified risks to the forecast, including potential fiscal measures to address revenue shortfalls, a resurgence in food inflation, and rising global commodity prices.