- Despite strong demand, government holds cut-off yields steady, signaling no immediate rate cut expectations
The government raised Rs527 billion in a Treasury bills (T-bills) auction on Wednesday, exceeding its target and surpassing the amount maturing, as banks and the corporate sector showed increased interest in government securities.
Despite the high demand, the government kept the cut-off yields unchanged, indicating no immediate expectation of an interest rate cut. This was further evidenced by the market trends, with banks showing a preference for investing in longer-term 12-month T-bills.
The highest bids of Rs556.5 billion were placed for the 12-month T-bills, with the government raising Rs275.7 billion from this tenor. Additionally, Rs73 billion was raised through one-month bills, Rs41.3 billion from three-month bills, and Rs23 billion from six-month bills.
The total bids in the auction amounted to Rs1.385 trillion, surpassing the target of Rs450 billion. The government raised Rs527 billion, compared to the Rs445 billion maturing in this period, underscoring the continued reliance on T-bills to meet its financing needs.
As the government faces growing fiscal requirements, particularly with Rs9 trillion allocated to interest payments on borrowings in FY25, banks have increasingly turned to government securities. This rise in T-bill investments highlights the constraints on government spending for developmental projects, as a large portion of the budget is dedicated to debt servicing.
Although revenue collection has improved, the government continues to argue that many citizens are not paying taxes. With taxes levied on most goods and services, experts predict that the government will again depend heavily on bank funding this year. Despite higher revenue, the government is still falling short of its target, and experts caution against excessive borrowing that could limit funds for critical development initiatives.
