KARACHI: The State Bank of Pakistan (SBP) has slashed cut-off yields on treasury bills for maturities of up to six months but increased the rate for 12-month papers by 14 basis points in the latest auction.

In the previous T-bills auction, yields had indicated room for a possible interest rate hike. However, the Middle East crisis altered the outlook, as a surge in oil prices pushed inflation higher.

Since inflation shapes the interest rate trajectory, the SBP kept the policy rate unchanged in March. Inflation rose to 7.3 per cent in March compared to 7pc in February, indicating an upward trend.

Earlier, at the end of January, the SBP reduced the cash reserve requirement by one percentage point to 5pc in a bid to enhance liquidity in the banking system and support private-sector activity.

Govt raises Rs1.5tr amid Rs4.2tr bids

However, rising geopolitical tensions in February, ahead of US and Israeli strikes on Iran on Feb 28, led to caution in the private sector, dampening investment and expansion plans.

SBP data showed the steepest decline in T-bill yields for the one-month tenor, which fell by 49 basis points to 10.69pc, a figure that is closest to the policy rate of 10.5pc.

Similarly, yields were cut by 35 basis points for three-month papers to 11.43pc, and by 32 basis points for six-month papers to 11.15pc. In contrast, the yield on 12-month papers rose by 14 basis points to 11.89pc.

The government raised Rs1.5 trillion through competitive and non-competitive bids, while total participation reached Rs4.249tr, reflecting strong investor interest in government securities.

The trend suggests that banks remain reluctant to extend credit to the private sector, preferring to invest in risk-free government instruments, particularly amid uncertainty linked to the Gulf crisis.

Pakistan’s economy is also exposed to the fallout of the conflict, as it relies heavily on imported oil and gas, whose prices have surged significantly.

Published in Dawn, April 16th, 2026