KARACHI: The money market’s response to low inflation and expectations of an interest rate reduction in the upcoming monetary policy review are reflected in the beginning decline of the Karachi Interbank Offered Rate, or Kibor.
Kibor fell 11 basis points (bps) for a one-year period from Friday to Monday, going from 21.38 percent to 21.27 percent. This was the biggest drop throughout the course of the two days.
But practically every tenor noticed a decline in Kibor. The benchmark six-month Kibor dropped from 21.69pc to 21.59pc, a 10bps decline. The one-month Kibor rate was down 4bps on Monday, closing at 22.21 percent vs 22.25 percent on Friday.
“Determining the true cause of the drop is not very significant. Money market dealer and senior banker S.S. Iqbal stated, “The money market expects that the interest rate could see a cut in the next monetary policy.”
Recent decline in headline inflation points to a future trend
According to him, the recent decline in the headline inflation rate portends future inflationary trends that could lower interest rates.
He did, however, note that the food basket is anticipated to be more expensive in March than it will be in any other month because of Ramadan.
By the end of this month, the State Bank of Pakistan is expected to make the announcement about monetary policy. Bankers are closely observing the developments, just as they were last month. The interest rate has raised production costs, accelerated inflation, and ultimately decreased consumer purchasing power, which is why business and commerce are quite wary of it. A decrease in consumption will have an impact on economic growth.
The annual rate of inflation in February was 23.1 percent, down from 28.3 percent in January. This is a sharp decline of 5.2 percent. Kibor began to decline for this reason, and the market saw clear indications of a rate cut.
Before beginning discussions with the IMF for further loans and the release of the promised $1.2 billion, the third tranche of the $3 billion Stand-By Arrangement, the new government must, however, have some time to gather itself.
Regarding the additional conditions that the IMF might suggest for the economy’s “consolidation,” market commentators are unsure. Regarding the policy interest rate and the CPI’s future development, the majority of analysts are unsure. Interest rate cuts were widely anticipated prior to the previous monetary policy announcement, but the inflation data altered the picture and the interest rate stayed the same.
