Pakistan's treasury-bill yields stay above the 11.5% policy rate as emergency rule tightens Islamabad's hold on Khan's home province

Pakistan's government kept treasury-bill rates nearly unchanged at an auction on Wednesday, Dawn reported. Yields on every maturity stayed above the State Bank of Pakistan's 11.5% policy rate. It was the last auction before the central bank's next monetary policy decision. When short-term government debt yields more than the policy rate, investors are usually signaling that they expect the policy rate to rise, not fall.

The auction took place amid a political crisis. President Asif Ali Zardari declared a state of emergency in Khyber Pakhtunkhwa and suspended the provincial government led by Imran Khan's Pakistan Tehreek-e-Insaf (PTI) party. Authorities detained Chief Minister Sohail Afridi and some of his cabinet. The federal government says the provincial administration failed to contain an Islamist insurgency on the Afghan border. PTI says the real aim is to stop Khan's supporters from marching on Islamabad to demand his release from prison.

BBC News Hindi reported that the army has surrounded Khan's stronghold and asked, in its headline, whether Pakistan is taking a serious risk. The BBC quoted analysts who argue that the confrontation with Khan's supporters may increase instability rather than reduce it.

Lenders are watching too. The World Bank rated its two Pakistan loan programs, worth about $670 million, as "moderately satisfactory" with "substantial risk", Dawn reported. The programs aim to support economic stability and raise tax collection relative to gross domestic product.