The State Bank of Pakistan (SBP) cut the rate of return on treasury bill (T-bill) yields by a modest 39 basis points on Wednesday. According to reports, the reduction in T-bill yields could indicate a possible cut in policy rates at the next monetary policy meeting.

 

The meeting, scheduled for July 30, may result in a reduction in interest rates, which have remained at 11 percent since May 2025. As per reports, the SBP’s latest T-bill auction shows a change in market sentiments, as the market anticipates a cut in interest rates because of the decline in inflation rates and subdued economic growth.

 

The rate of return on one-year T-bills has fallen by 10 bps to sit at 10.80 percent. Data from reports suggests that the rates of return for one-month, three-month, and six-month papers have fallen by 39bps to 10.85 percent, 29bps to 10.99 percent and 19 bps to 10.89 percent, respectively.

 

Aside from the decline in the rates of return on T-bills, inflation has remained largely controlled as well. Reports indicate that headline inflation fell to just 3.2 percent in June 2025 and is projected to vary in a band of three to 3.5 percent on a year-on-year basis in July 2025.

 

This marks a stark fall in inflation that the economy was experiencing in the corresponding period last year, as the rate of inflation sat at 11.1 percent in July 2024. Moreover, the low inflation rates usually correspond to a low level of economic growth.

 

Economists have outlined how the Gross Domestic Product (GDP) growth rate in fiscal year (FY) 2024-25 remained at a suboptimal 2.6 percent. The SBP could help improve the GDP growth rate by slashing the interest rate. An interest rate cut could improve the economic outlook for FY 2025-26 as it generally results in increased commercial activity and a surge in consumer demand.

 

This is because when banks offer a lower rate of return on savings, individuals then prefer to park their funds in physical projects that yield a higher rate of return. Moreover, existing businesses benefit from the availability of cheaper loans, which can fuel growth. This usually leads to industry expansion, job creation and an increase in the goods and services purchased by consumers. 

 

A poll conducted by a leading Securities company has suggested that 56 percent of participants expect a rate cut of 50 to 100 bps, while 37 percent believe that the policy rate will remain unchanged.