July 14, 2022 (MLN): Following the rise in the policy rate, the six-month Karachi Interbank Offered Rate (KIBOR) has been increased to its all-time high level of 15.87%, up by 35 basis points (bps) DoD. Accordingly, the spread between the policy rate and KIBOR stood at 87 bps.
The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) on July 07, 2022, raised the policy rate by 125 bps to 15% in an attempt to arrest the spiraling inflation. On the same day, the KIBOR was recorded at 15.52%.
Cumulatively, since January 2021 to date, KIBOR witnessed a notable surge of 852 bps.
In the backdrop of the 15% policy rate, the current rate of KIBOR is justified, Fahad Rauf, Head of Research at Ismail Iqbal Securities told Mettis Global.
However, this increase would discourage investment in the economy. The business community/borrowers will have to bear the burden as they have to pay more interest.
He went on to say that given this scenario, people would tend to put their money in saving accounts and mutual funds.
Arsalan Siddiqui, Head of Research at Optimus Capital said, “It caught up latest policy rate increase to 15% plus in MPC meeting firm forward guidance was missing rather it said that future steps will be data-driven. This is some kind of uncertainty regarding future guidance and policy rate peaking. This has translated into KIBOR.”
However, the announcement of the IMF agreement today will build a positive expectation of economic recovery from the external and fiscal front. This may stabilize yields, he added.
Following the commencement of the first monetary policy of FY23, the money market yields also witnessed an increase of 50-100bps. The increase in yields was recorded across all the tenors, a note by AHL underlined.
With the data available, since June 1998, 3M and 12M yields are the highest ever while 6M yields are the highest. The rise in treasury yields also hints toward investors weighing in inflation and economic growth.
The investors continue to take note of rising inflation around the world as well as in Pakistan along with a strong possibility of a slowdown in economic growth, it noted.
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