The six-month Karachi Inter-bank Offered Rate (KIBOR), an equilibrium interest rate for a given tenor at which banks want to lend money to other banks, hit its all-time high on Monday, according to State Bank of Pakistan (SBP) data.
The 6M KIBOR increased by 91bps DoD and reached 16.81%. KIBOR offers for nine-month and one-year tenors stood at 17.07% and 17.09%, respectively.
The development follows the 100bps policy rate hike announced by the Monetary Policy Committee (MPC) of the central bank on Friday, which took the key interest rate to 16%, the highest since 1998-1999 when it stood at 16.5%.
“The 6M KIBOR increased by 91bps DoD and reached 16.81%; an all-time high level,” said brokerage house Arif Habib Limited (AHL) in a note on Monday, adding that this is an increase of 91 basis points since November 25, and 148 basis points since June 30, 2022.
“The development is a result of the 100bps policy rate hike,” Fahad Rauf, Head of Research at Ismail Iqbal Securities Limited, told Business Recorder.
SBP raises key interest rate by 100bps, takes it to 16%
The market analyst said consumer financing is expected to take a further hit.
“The government increased the policy rate to curb demand, but the problem is that the government is the biggest borrower. Thus, the rate hike would increase the government's borrowing cost, driving up its fiscal deficit, which would push the government towards budget cuts,” he said.
“Moreover, corporate profitability would also take a hit,” he added.
Analysts perplexed as SBP hikes key interest rate to 16% — highest since 1998-99
In its statement, the MPC said the decision reflects the view that inflationary pressures have proven to be stronger and more persistent than expected.
"It is aimed at ensuring that elevated inflation does not become entrenched and that risks to financial stability are contained, thus paving the way for higher growth on a more sustainable basis," the MPC said on Friday.
It was of the view that amid the ongoing economic slowdown, inflation is increasingly being driven by persistent global and domestic supply shocks that are raising costs.
Moreover, the central bank also revised upwards its inflation projections for FY23.
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