KARACHI: Pakistan saw a net outflow of $58.04 million from T-bills in the three weeks that ended November 22, 2024 after foreigners have pulled out investments worth $107.35 million from rupee-based government debt securities ahead of a likely cut in the central bank’s key policy rate in the monetary policy announcement due on December 16, 2024.
State Bank of Pakistan (SBP) reported on Monday that global investors had injected $49.31 million in the period under review, suggesting outflows have surpassed inflows in the month under review.
Accordingly, the country has recorded a net outflow of $58.04 million from T-bills in the three weeks ended November 22, 2024. The net outflows have been seen after a long time on the outlook that the rate of return on T-bills would fall further along with the policy rate this month.
The returns on three-month T-bills have already nearly halved at around 13% at present compared to around 25% some 14 months ago in September 2023.
While talking to media, Arif Habib Limited Director Equities Tahir Abbas said the rate of return on T-bills are linked with the SBP’s key policy rate.
“We expect the central bank would make a fifth consecutive cut in its policy rate in the range of 150-200 basis points on December 16, 2024. This would further decrease the rate of return on T-bills.”
So far, SBP has reduced its policy rate cumulatively by 700 basis points since June 2024.
He said foreign investors returned to the local debt market when the SBP maintained the policy rate at record high of 22% from June 2023 to June 2024.
At the time, the policy rate in developed countries like the US stood at 5.25-5.50%. The significantly higher interest in Pakistan had lured foreign investors to invest here.
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“The wider arbitrage (the gap between policy rates in the two different markets) of almost 20% had attracted foreign investors to invest in Pakistan’s domestic debt market. They are now pulling out the investment as the arbitrage is shrinking.”
The stability in rupee-dollar exchange rate was another strong reason for the return of foreign investors into rupee-based T-bills. The exchange rate has remained stable in the range of Rs277-279/$ for the past one-year.
Unlike a sharp cut in the returns on T-bills, the rupee is expected to remain stable at around current levels for the next two to three months, Abbas said.
“Strong inflows of workers’ remittances at around $3 billion a month and continuous improvement in the country’s export earnings would continue to support the rupee to remain strong against the greenback.”
The breakup of the central bank data suggests foreign investors from the UK have divested a gross $79.49 million so far in November 2024, followed by $15 million by UAE-based investors.
Investors from Australia pulled out $7.47 million. Investors from the US and Singapore have withdrawn $2.89 million and $2.49 million, respectively, in the under review month.
Cumulatively, global investors have invested a net $283.47 million in the first five months of the current fiscal year 2024-25.
They have invested a gross $756.52 million and divested a gross $473.05 million from T-bills in the five months.
Earlier, foreign investors had invested a record $3.6 billion during 2019 and 2020 due to the then-high interest rate and stable rupee. The outbreak of the Covid-19 agreed the global investors to aggressively pull out the multibillion dollar investment in a matter of months starting March 2020.
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