December 04, 2021 (MLN): Following a flurry of changes in the money market earlier this week, the six-month Karachi Interbank Offer Rate (Kibor) closed to a two-year high at 11.5% on Friday, data released by the State Bank of Pakistan (SBP) showed.
“After a surprise increase in cut-off yield in the T-Bill auction on Wednesday, a bearish spell has been seen in the local money market. Bond yields are up 52bps in the last two days. The three-year Pakistan Investment Bond (PIB) is now near 11.89%, while five-year is at 12% and 10-year is at 12.3%. These levels are being witnessed after 26 months,” Topline Securities said in a research note.
It further added that bond yields are up 40-55bps since the last auction on Nov 29, 2021, while it is up 145bps since the SBP increased the policy rate by 150bps on Nov 19, 2021.
“Similarly, benchmark lending rate, six-month Kibor closed at 11.5% today, a level not seen in last 21 months. This is up 415bps from its low of 7.3%,” the note read.
This indicates the increased borrowing requirement of government from commercial banks and the likelihood of a further hike in the policy rate. It is important to note that with the International Monetary Fund program in place, commercial banks offer the largest window for funding the financing requirement of the government as borrowing from the SBP is discouraged.
Meanwhile, it said that spread between Kibor and policy rate has increased significantly to 275bps compared to the last three-year average differential of 50bps.
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