Short-term KIBOR rates decrease, anticipating reduction in policy rate
The Karachi Interbank Offered Rate (KIBOR) has seen a significant decrease across various tenors, indicating market anticipation of monetary easing. The one-week KIBOR decreased by 3 basis points (bps) to 11.34% on Friday, while the three-month KIBOR dropped by 1bps to 10.86%, reaching a 41-month low[1].
These declines in KIBOR rates come in anticipation of a potential rate cut by the State Bank of Pakistan (SBP), as suggested by Sana Tawfik, Head of Research at AHL[1]. Tawfik cautions about potential risks, including floods that may cause food inflation and pressure on PKR parity due to rising imports[1].
The Monetary Policy Committee (MPC) of the SBP is scheduled to meet on Wednesday, July 30, and many analysts expect a 50bps cut in the policy rate[1][2]. This expectation is supported by low inflation, a manageable current account deficit, and improved reserve position[1][2].
In its previous MPC held on June 16, the central bank decided to keep the policy rate unchanged at 11%[1][5]. However, conditions have improved since then, providing room for a potential rate cut[1][5]. Analysts like Shankar Talreja of Topline Securities specifically anticipate a 50bps reduction, with the policy rate settling around 10% by the end of the year[1].
As the MPC meeting approaches, the consensus among experts and indicators points towards a potential 50 basis-point reduction in the SBP policy rate[1][2]. The exact impact on KIBOR rates remains to be seen, as Tawfik did not provide a specific rate cut expectation for KIBOR in the current paragraph[1].
[1] Source: Dawn News [2] Source: The Express Tribune [4] Source: S&P Global Ratings [5] Source: The News International
- The potential 50 basis-point reduction in the SBP policy rate, as expected by many analysts, is driven by improved conditions in finance, including low inflation, a manageable current account deficit, and an improved reserve position.
- The decrease in KIBOR rates indicates market anticipation of a rate cut by the State Bank of Pakistan (SBP), which may pose risks to businesses, such as potential inflation due to floods and pressure on PKR parity due to rising imports, as cautioned by Sana Tawfik, Head of Research at AHL.
- The position of investing in the Pakistani market could be favorable, considering the anticipated rate cut by the SBP, but the exact impact on KIBOR rates remains uncertain and Tawfik did not provide a specific rate cut expectation for KIBOR in the current context.
