The Karachi Interbank Offered Rate (KIBOR) dropped notably following the release of Consumer Price Index (CPI)-based inflation figures for the month of February.

Six-month KIBOR fell by 14 basis points (bps) on a day-to-day basis (DoD) to 21.59%. Three- and nine-month KIBOR declined by 14 bps each, to 21.63% and 21.44%, respectively, while 1-year rate dropped even more notably to 21.27% after a decrease of 17bps.

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

Analysts at Arif Habib Limited (AHL) said the decline was witnessed across all tenors after the release of inflation numbers for February by the Pakistan Bureau of Statistics (PBS) on Friday, “which were below market expectation”.

Pakistan’s headline inflation clocked in at 23.1% on a year-on-year basis in February, PBS data showed on Friday, much lower than the reading in January when it stood at 28.3%.

The inflation reading was lower than the government’s expectation of 24.5-25.5% and adds to the wider impression that the State Bank of Pakistan (SBP) would start monetary easing in the upcoming meetings. The next Monetary Policy Committee of the SBP is scheduled to take place on March 18.

“Too early to say but yes with inflation coming down, we can expect a monetary easing cycle to start from March 2024,” Tahir Abbas, Head of Research at AHL, told Business Recorder.

In its last meeting, the MPC of the central bank had maintained status quo and kept the key policy rate at 22%.

Lower KIBOR will help to improve the private sector credit off-take, analysts said.