Kibor dips as SBP cuts rate by 250bps

KARACHI: The Karachi Interbank Offered Rate (Kibor) declined by 8 to 137 basis points (bps) across all tenors on Tuesday, following a significant interest rate cut by Pakistan’s central bank due to a quicker-than-expected decrease in inflation.

Kibor represents the average interest rate at which banks are willing to lend money to one another.

According to data from the State Bank of Pakistan, the one-week Kibor fell by 137bps to 15.47 per cent, and the two-week Kibor dropped by 87bps to 15.46 per cent. Similarly, the one-month Kibor decreased by 61bps to 15.46 per cent. The three-month Kibor saw a reduction of 16bps, reaching 13.71 per cent, while the six-month rate fell by 4bps to 13.29 per cent. The nine-month rate decreased by 7bps to 13.3 per cent, and the one-year rate declined by 8bps to 13.09 per cent.

On Monday, the State Bank of Pakistan cut its benchmark interest rate by a record 250 basis points to 15 per cent. Since June, the SBP has lowered interest rates by 700bps over four straight cuts.

Inflation has decreased more swiftly than anticipated and is now close to the SBP’s medium-term target range in October.

“The committee viewed the current monetary policy stance as appropriate to achieve the objective of price stability on a durable basis by maintaining inflation within the 5–7 percent target range,” the SBP statement said.

“This will also support macroeconomic stability and help achieve economic growth on a sustainable basis,” it added.

The SBP added that a favourable economic outlook, noting strong remittance flows and a downward trend in inflation. This positive assessment suggests that interest rates may still have room to decrease, with further cuts anticipated in the coming months, said Chase Securities in a note.

The SBP expects inflation to remain relatively low due to several favourable factors, including an improved supply of key food commodities, decreasing oil prices, and base effects. Pakistan’s headline inflation stood at 7.2 in October, compared with 6.9 per cent in the previous month.

The SBP forecasts that average inflation for FY25 will be below its earlier projected range of 11.5 per cent to 13.5 per cent. The exact inflation projection will be disclosed in January next year. Analysts expect inflation to be around 7.0 per cent to 8.0 per cent, while the IMF projects it to be 9.5 per cent for this fiscal year.