KIBOR Surges to Highest Level Since 2009

The six-month Karachi Interbank Offered Rate (KIBOR) has increased by 641 basis points to 14.1 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 KIBOR is at a 13-year high of 14.1 percent today, which is the highest level since 19 February 2009 (14.18 percent). Likewise, the KIBOR for the nine-month and one-year tenures stood comfortably at 14.28 percent.

Economic analyst, A. H. H. Soomro, told ProPakistani,

The second round of inflation due to fuel price hike is going to be a tough wave to ride. Rising inflation invariably feeds into expectations of interest rate hike. Though i doubt SBP will chase inflation rates now. Also, with rising budget deficit due to high markup payments and lower fuel taxes have increased govt borrowing needs. Hence, borrowers can’t be choosers.

The six-month KIBOR has increased by 641 basis points since 30 June, and 264 basis points since 31 December. The hike conveys inflationary concerns and rising expectations that the SBP will increase the interest rate again during May’s Monetary Policy Committee meeting.

With changes in KIBOR, the borrowing cost for consumers and businesses influence the decisions of the public to consume, save, or invest.

Market players expect the higher KIBOR and SBP’s recent interest rate hike to dent the private sector credit off-take.

Last week’s auction of T-Bills showed that the cut-off yields on the short-term paper were up by 70 basis points. These rates had increased by 150 basis points in the last two auctions of the paper.

The rising interest rate is making borrowing costlier for the government and the private sector, and the strategy for a higher interest rate involves countering the sharp increase in inflation.