KARACHI: The benchmark 6-month Karachi Interbank Offered Rate (KIBOR) has experienced a significant drop of 52 basis points over the past three trading sessions, reflecting heightened market expectations of further interest rate cuts by the State Bank of Pakistan (SBP).
As of the latest trading session, the bid and offer rates for the 6-month KIBOR have declined to 18.58% and 18.83%, respectively, down from 19.10% and 19.35% as recorded on August 6, 2024. This marked decrease in KIBOR is closely linked to a series of developments in the financial markets, notably the T-Bills auction held on Wednesday, where the SBP received bids worth Rs1.78 trillion but accepted only Rs355 billion. The auction’s outcome has had a ripple effect, driving down yields across all tenors by as much as 54 basis points.
The recent decline in KIBOR comes on the heels of the central bank’s decision to ease the policy rate by another 100 basis points, bringing it down to 19.5%. This move, which occurred approximately two weeks ago, was the second consecutive reduction, contributing to a total decrease of 250 basis points since June 2024.
The central bank’s actions are largely seen as a response to easing inflationary pressures, with July’s inflation rate coming in at 11.1% year-on-year, lower than market expectations. This softer inflation figure has reinforced the belief that additional rate cuts may be on the horizon, as the SBP seeks to balance economic growth with inflation control.
Currently, Pakistan’s real interest rates stand at a substantial 8.41%, the highest in the region. This has spurred calls from industry leaders, such as the All-Pakistan Textile Mills Association (APTMA), for further rate cuts to reduce borrowing costs and stimulate economic growth.
Market participants are now closely watching the advance calendar of the Monetary Policy Committee (MPC) meetings for the second half of 2024. The next policy rate decision is scheduled for September 12, 2024, and it is widely anticipated that the central bank may opt for further easing in light of the current economic indicators.
