KIBOR jumps after SBP holds policy rate steady

July 31, 2025 (MLN): Karachi Interbank Offered Rates (KIBOR) jumped sharply across all maturities on Thursday, following the State Bank of Pakistan's (SBP) unexpected decision to keep its benchmark policy rate unchanged at 11%.

The move defied widespread market expectations of a rate cut between 50 to 100 basis points, prompting a swift repricing across the money market.

Market participants were caught off guard, leading to an immediate spike in interbank lending rates.

The most notable change occurred in the 1-month tenor, which surged by 28 basis points from a day earlier, highlighting the market’s surprise reaction to the Monetary Policy Committee’s (MPC) stance.

“This was a surprise to everyone,” said a senior dealer at a leading commercial bank. “The consensus was that the SBP would begin an easing cycle, but holding the rate flat has sent a message that the central bank is still in wait-and-see mode.”

The Central Bank’s decision likely stems from caution over external vulnerabilities, including global oil price uncertainty, exchange rate pressure, and fiscal slippages.

By holding rates steady, the SBP appears to be prioritizing macroeconomic stability over immediate monetary relief.

According to data as of July 31, 2025, KIBOR rates rose between 18 to 28 basis points across all tenors on a day-over-day (DoD) basis.

However, on a fiscal year-to-date (FYTD) basis, tracking changes from the start of the fiscal year (July 1, 2025), rates have actually declined slightly.

The FYTD figures range from -4 to -14 basis points, reflecting a softer interest rate environment earlier in the month before this spike.

This divergence between DoD and FYTD changes points to a market that had been pricing in easing expectations through most of July, only to reverse course sharply after the MPC's unexpected decision.

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