KARACHI: Following a 100-basis-point increase in the policy interest rate this week, the State Bank on Wednesday raised cut-off yields on treasury bills by up to 83 basis points, making them more attractive to investors.
The record bids of Rs3.8 trillion clearly reflect ample liquidity in the financial system, indicating that these funds have limited alternatives other than investment in government securities. This is a concerning sign for economic growth, which is already under pressure from inflation and higher government spending.
Banks and other investors submitted bids worth Rs3.838tr in the auction. The largest portion — Rs1.655tr — was offered for one-month papers, followed by Rs1.528tr for three-month papers. The lowest bids, Rs206.5bn, were received for the 12-month tenor.
The government, however, exceeded its borrowing target, accepting Rs1.048tr against a target of Rs650bn. The target itself was lower than the maturing amount of Rs800bn, and the higher borrowing suggests increased government spending.
Govt exceeds borrowing target, accepting Rs1.048tr against Rs650bn
An additional Rs302bn was raised through non-competitive bids, taking total borrowing in the auction to Rs1.374tr — more than double the initial target.
The relatively low interest in 12-month papers indicates investor uncertainty about the future direction of interest rates. If the prevailing war-like situation in the Middle East continues for weeks, it could intensify inflationary pressures, leaving the State Bank with limited options other than further rate hikes.
As expected after the policy rate increase to 11.5pc, cut-off yields rose across all maturities. The largest jump was seen in the benchmark six-month T-bills, where yields climbed 83 basis points to 11.98pc from 11.15pc.
Returns on one-month papers rose by 78 basis points to 11.47pc from 10.69pc, while yields on three- and 12-month papers increased by 40bps and 20bps, respectively.
While higher yields have made T-bills more attractive to investors, they also add to the government’s debt burden. Domestic debt is already at record levels, having risen by Rs5.6tr between February 2025 and February 2026.
Published in Dawn, April 30th, 2026
