KIBOR drops across all tenors

RIZWAN BHATTI

KARACHI: The Karachi Interbank Offered Rate (KIBOR) declined across all tenors on Tuesday, following a cut in the key policy rate by the State Bank of Pakistan (SBP).

On Monday, the SBP’s Monetary Policy Committee (MPC) unexpectedly reduced the policy rate by 100 basis points to 11 percent, citing a sharp and sustained decline in inflation and an improved external account position. The rate cut exceeded market expectations, which had largely anticipated either no change or a modest 50-basis-point reduction.

KIBOR is an equilibrium interest rate for a given tenor at which banks want to lend money to other banks.

According SBP’s statistics, the benchmark six-month KIBOR fell by 64 basis points to 11.44 percent on Tuesday, down from 12.08 percent a day earlier. Similarly, the one-week KIBOR dropped by 91 basis points, settling at 11.43 percent compared to 12.34 percent on Monday.

Similarly, the two-week KIBOR also declined from 12.31 percent to 11.44 percent. The one-month KIBOR declined by 77 bps to 11.47 percent on Tuesday compared to 12.24 percent on Monday. The three-month KIBOR fell from 12.08 percent to 11.33 percent.

In addition, the nine-month and one-year KIBOR rate decreased from 12.26 percent to 11.53 percent and 11.51 percent respectively.

Analysts said the decline in the policy rate and the subsequent drop in KIBOR is expected to stimulate private sector borrowing in coming months, as lower interest rates make credit more affordable. “With reduced financing costs, businesses may be more inclined to invest in expansion, working capital, and new projects, potentially driving economic activity and supporting overall growth,” they added.