Borrowing Costs Suddenly Fall in Pakistan After SBP Bets Inflation to Cool Down

Pakistan’s money market eased across most maturities on June 15 after the State Bank of Pakistan kept its policy rate unchanged

The central bank forecasts inflation to ease to the 5-7 percent target range as regional tensions ease after Pakistan succeeded in mediating a truce between Iran and the US.

Data from Arif Habib Ltd showed mixed but largely downward movement in the Karachi Interbank Offered Rate (KIBOR), with short tenors holding steady while longer-dated rates declined across the curve.

The one-week KIBOR remained unchanged at 11.93 percent, and the two-week tenor stayed flat at 11.97 percent.

A decline was also seen beyond the short-term papers:

• The one-month rate fell to 12.08 percent (-9bps),
• The three-month to 12.21 percent (-21bps),
• The six-month to 12.36 percent (-20bps),
• The nine-month to 12.74 percent (-25bps), and
• The one-year tenor eased to 12.83 percent (-23bps).

The downward adjustment suggests the Pakistani market along with regional peers are pricing in easing price pressures, supported by expectations that softer global oil prices and latest US-Iran ceasefire will reduce imported inflation and ease domestic cost pressures in fuel and energy-linked products.

Despite the recent drop, KIBOR rates still remain a bit above end-June 2025 readings.

Compared to June 30, 2025, the one-year KIBOR is higher by 152bps, while other tenors also remain elevated.

The current trajectory can also mean one thing: SBP has held the benchmark rate unchanged today. So money markets will gradually adjust with inflation to fall below double-digits if energy prices stay as low as they have been in the past week.