KIBOR slumps up to 91bps after rate cut

May 06, 2025 (MLN): Following the State Bank of Pakistan’s monetary policy decision yesterday, Karachi Interbank Offered Rate (KIBOR)  across all major tenors declined sharply by 64 to 91 basis points, indicating the market’s swift realignment with the State Bank of Pakistan’s (SBP) dovish monetary stance.

The 1-week KIBOR saw the steepest single-day drop of 91bps, falling to 11.43%. Meanwhile, the benchmark 3-month, 6-month, and 1-year rates declined by 75bps, 64bps, and 75bps respectively, closing at 11.33%, 11.44%, and 11.51%.

Showing a significant shift in market expectations and liquidity dynamics over the fiscal year, KIBOR plunged by 771bps to 945bps compared to FYTD levels (June 28, 2024). 

The policy rate cut has not only lowered funding costs for corporates but also delivered a strong signal of potential further easing, contingent upon continued disinflation.

Lower KIBOR levels bode well for leveraged sectors such as cement, textiles, and automobiles, as reduced interest expenses are likely to support margins and investment activity.

However, the easing rate environment may compress net interest margins (NIMs) for banks, particularly on their floating-rate loan portfolios.

The sustained downtrend in benchmark lending rates is also expected to increase demand for government securities and fixed-income instruments, indicating a possible flattening of the yield curve.

With inflation on a declining path and the 1-year KIBOR rate having dropped by more than 770 basis points since the start of the fiscal year, markets appear to be pricing in the potential for an additional rate cut in the upcoming Monetary Policy Committee (MPC) meeting.

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