The six-month Karachi interbank offered rate (Kibor) has increased by 87 basis points to 10.03 percent owing to the sharp increase in the key policy rate by the State Bank of Pakistan (SBP).
According to the central bank’s data, the six-month Kibor (offer) rose by 87 basis points (bps) to 10.03 percent on Monday, up from 9.16 percent on Friday. Kibor stood at 8.71 percent on November 1, 2021.
The Monetary Policy Committee of SBP had raised its benchmark interest rate by 150 basis points to 8.75 percent last Friday.
In its monetary policy statement, the central bank said, “The MPC (Monetary Policy Committee) was of the view that there is now a need to proceed faster to normalize monetary policy to counter inflationary pressures and preserve stability with growth.”
According to analysts, the borrowing cost of the private sector will see a big increase as a result of the hike in Kibor as a major portion of borrowing for these companies comes from Kibor-led lending.
Analysts expect further tightening of the monetary policy in the coming months as the central bank grapples with rising inflation and growing current account deficit.
They said that the rise in Treasury Bill yields has also contributed towards the surge in Kibor. The secondary market yields have increased by around 100-120 bps versus last Friday.
Analysts expect the higher Kibor and the recent increase in cash reserve requirements (CRR) for banks to dent private sector credit off-take. However, SBP’s concessionary lending schemes like TERF (Temporary Economic Refinance Facility) and LTFF (Long-term Financing Facility) could provide some support to the investment activities.
