Expectations for another rate-cut by the central bank get more weightage as the backbreaking inflation is recorded to have gone down below 8 percent during the month of October.
According to unofficial estimates, the Consumer Price Index (CPI) further slid to 7.66 percent compared to 8.79 percent noted in September.
A monthly account of the price hike shows that inflation stood at 0.4 percent as against 0.8 percent in the previous month. On average, the inflation in 4MFY13 arrived at 8.8 percent compared to 11.3 percent in the same period of last year. “We believe the major reason behind the decline is fall in food head,” said Nauman Khan, a researcher at Topline Research.
However, he said, he was expecting a higher month-on-month number for the HRI head.
In anticipation of lower CPI number, the bull-run in the federal government’s treasury bills and Pakistan Investment Bonds continue as yields hit five-year low on Friday in anticipation that the central bank would reduce the discount rate in its meeting due early next month.
The benchmark 10-year Pak Rupee bond on Friday traded as low as 10.98 percent, a level not seen in last five years. Since July 2011, when the State Bank started the process of monetary easing, the yield on benchmark 10-year PIBs has shrunk by over 300 basis points.
The rally in short-term treasury papers is also gaining momentum as bankers and investors are aggressively locking their investment at higher rates. The yield for one-year T-bills declined drastically to 9.1 percent, the lowest level since July 2007.
The 6-months and 3-months T-bills were, respectively, traded at 9.07 percent and 9.09 percent, lowest since August 2007. From last monetary policy the T-bill yield has decreased in the range of 70 to 75 basis points, while are down 430 to 480 basis points from July 2011. According to Khan, the soft inflation number is likely to prompt the central bank to opt for another rate-cut by 50 to 100 basis points in December.
