KARACHI: The benchmark Karachi Interbank Offered Rate (Kibor) has started crawling up after the State Bank of Pakistan (SBP) left its policy rate steady at an unprecedented 22 per cent in its last monetary review on Jan 29, said market sources.

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       The Kibor six-month tenor rose by 24 basis points during the week reflecting growing concerns over the high interest rate and inflation. It was 20.82 per cent on Jan 24 reaching 21.06pc on Feb 1.

       “In the rate cut anticipation, the markets have adjusted downward including the T-bills yields, however, the unchanged interest rate is forcing the Kibor to go higher,” said S. S. Iqbal, a money market expert.

       He said the next T-bills auction would make it clear whether the cut-off yields are increased or not. In the previous auction held on Jan 24, the benchmark six-month T-bills cut-off yield was 20.4pc while the three-month was 20.99pc and the 12-month was 20.22pc per annum.

       Market experts said the yields were adjusted downwards amid strong expectations of a downward revision in the SBP policy rate.

       “The real interest rate is negative by a great margin since the inflation is more than 28.34pc and the interest rate is 22pc. This is the reason that Kibor is going up,” said Mr Iqbal

       Kibor is a market-determined average interest rate at which banks lend to one another in the interbank market. It has stayed higher during the current fiscal year as its six-month tenor reached as high as 25pc in September 2023, much higher than the SBP’s policy rate.

       Despite negative real interest rates with high inflation, banks have to offer higher returns to their depositors. However, since most of the banks have placed maximum liquidity in risk-free and high-yielding government papers, the profitability almost doubled in 2023 compared to the last year.

       “Bankers have been striving to attract maximum deposits under the current account to avoid payment of profits,” said Rashid Masoon Alam, a senior banker.

       He rejected the impression that banks have been offering high returns to their depositors in the wake of the prevalent 22pc policy rate.

       Published in Dawn, February 2nd, 2024