The benchmark six-month Karachi Inter Bank Offered Rate (Kibor) Monday surged to double-digit owing to sharp increase in the key policy rate by the State Bank of Pakistan (SBP).
Kibor is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in money market.
According to statistics, 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 the SBP had raised key policy rate by 150 bps to 8.75 percent last Friday to mitigate the risks related to inflation and external account. Cumulatively, the committee has raised the policy rate some 175 bps during the last two months and further increase is expected in future.
Economists said that with this hike in Kibor, borrowing cost of private sector would see a big increase as their major portion of borrowing comes from Kibor led lending.
As the inflation and current account is posing threat to the economy, the SBP is likely to further tighten the monetary policy in coming months, accordingly, the Kibor may also move upward.
They said that rise in Treasury Bill yields has also contributed in double digit Kibor. The secondary market yields were mounted up by 100-120 bps, they mentioned.
Analysts said the higher KIBOR and the recent surge in CRR may disturb the private sector credit off-take as trade and industry would be reluctant to take loans on higher interest rates.
However, in this situation, the SBP’s concessionary lending schemes like Temporary Economic Refinance Facility (TERF) and Long-term Financing Facility (LTTF) would provide some support to the industry.