6-month KIBOR rate drops to 16.18%, lowest in 22 months

The Karachi Interbank Offered Rate (KIBOR) has seen a significant decline following the State Bank of Pakistan's (SBP) decision to reduce its policy interest rate by 200 basis points to 17.5%.

The 6-month KIBOR, a key indicator for corporate lending, is now at its lowest level since January 4, 2023, at 16.18%. It is a good omen for consumer funding as the 6-month KIBOR is the benchmark indicator of home loans and auto loans. Although the rates are still high, but market is hopeful the rates would ease further going forward.

This reduction could provide much-needed relief to businesses by lowering their borrowing costs, potentially boosting investment and economic growth. Lower KIBOR rates make it cheaper for companies to finance operations, expand, and invest in new projects.

It may be mentioned here, in the first quarter of the current fiscal year, the private sector did not borrow from banks; instead, they repaid PKR 376 billion. In FY24, the private sector borrowed PKR 364.2 billion, compared to PKR 208.3 billion in FY23.

KIBOR serves as a benchmark for banks when lending to the corporate sector. The overall drop in KIBOR rates signals a shift towards a more supportive financial environment that could enhance credit flows, reduce debt-servicing costs, and potentially pave the way for an economic rebound.

Previously, interest rates were not declining due to high inflation, which peaked at 38% in May 2023, and the rapid depreciation of the rupee, which fell by 28% in FY23 and 10% in FY22.

The 1-week KIBOR rate experienced the most substantial drop, decreasing by 132 basis points to 17.82%. The 3-month, 6-month, and 12-month KIBOR rates also saw notable reductions of 95, 149, and 159 basis points, respectively. These rates now stand at 16.87%, 16.18%, and 15.51%.