Kibor rises to 16-month high; concern over further rise in policy rate

KARACHI: The Karachi Interbank Offered Rate (Kibor) has increased to a 16-month high, causing concerns over further rise in the policy rate.

Analysts at Topline Securities said that the Kibor, which is a benchmark lending rate used in Pakistan, has surged 76 basis points to 8.11 per cent in 2021 to-date.

This compares to the key policy rate, which remained unchanged during the first eight months of the year; followed by a marginal 25 basis points hike to 7.25 per cent by the State Bank of Pakistan (SBP) in its September 2021 Monetary Policy Statement.

Since the monetary policy announcement on September 20, 2021, 6-month Kibor is up 36 basis points to 8.11 per cent.

The 6-month Kibor has now reached its 16-month high as these levels were seen on May 20, 2020 when the policy rate stood at 8 per cent.

Similarly, the secondary market treasury bond rates (PKRV), including the 6-month T-Bill rate and three-year Pakistan Investment Bonds (PIBs) have also surged 80 basis points and 119 basis points in 2021 to-date to 7.98 per cent and 9.46 per cent, respectively. The T-Bills yield is also up 36 basis points since the announcement of the monetary policy.

The analysts believe that the recent surge in Kibor and the secondary market bond yields reflect heightened concerns over external account outlook and expectations of further increase in the policy rate.

They said this development will have a positive impact on the banks, whereas leverage companies and sectors such as cement, steel, OMCs could face a negative impact due to the higher finance costs.

The impact will be somewhat mitigated by concessionary lending schemes. However, it would still have an impact on the companies finance cost, as a major portion of the borrowing for these companies is still derived from the Kibor-led lending.

Cash rich sectors, which include E&Ps, fertiliser and autos are likely to benefit from the same with the rise in PKRV rates but higher rates may impact the sales outlook of sectors such as autos, consumers and others.

The analysts said the impact of surge in the Kibor and PKRV rates would be more profound on the banks than generally believed by the market.

This is because the minimum profit rate on savings and term deposits is linked with the policy rate, which will be increased by 25 basis points, compared with the Kibor and PKRV rates that have increased to a larger extent.

To recall, the minimum profit rate on savings and term deposits is 50 basis points below the State Bank of Pakistan’s repo rate; hence, the minimum profit rate on savings and term deposits increased 25 basis points to 5.75 per cent, as the revised repo rate stands at 6.25 per cent after the monetary policy announcement.