KARACHI: The yields on Treasury bills increased on Tuesday, even though the State Bank of Pakistan (SBP) reduced interest rates by 100 basis points (bps) last month and inflation continued to decline.

The three-month T-bill cut-off yield increased by 21bps to 11.79 per cent. A six-month paper’s yield rose 10bps to 11.5 per cent, while a 12-month paper’s yield rose 24bps to 11.59 per cent.

In contrast to the target of Rs450 billion and the maturity of Rs426 billion, the government raised Rs452 billion at the T-bill auction, which attracted Rs918 billion in participation, according to the SBP’s auction result.

“Yields are correcting to lower than expected 100bps cut in the last policy rate. However, the market is still expecting further rate cuts as all the three papers cut off yields came lower than the current policy rate,” said Awais Ashraf, director of research at AKD Securities Limited.

The SBP has cut its benchmark interest rate to 12 per cent.“Previous cut-off yields suggested a policy rate cut of over 150bps; however, the SBP adopted a cautious approach and reduced the rate by just 100bps,” he added.

In January, Pakistan’s consumer inflation rate dropped to 2.4 per cent year-over-year, the lowest level in over nine years. Inflation eased to 4.1 per cent in the previous month.