The KIBOR decline followed the State Bank of Pakistan’s (SBP) decision to cut the policy rate by 100 basis points to 11%, surpassing market expectations. As a result, interbank lending rates for various tenors dropped significantly on Tuesday, signaling a broader shift in the country’s monetary landscape.
Major Reductions Across Tenors
According to Arif Habib Limited, the one-week KIBOR dropped by 91 basis points to 11.43%. The two-week rate fell by 87 bps to 11.44%, and the one-month tenor decreased by 77 bps to 11.47%. Similarly, the three-month rate declined by 75 bps to 11.33%, while the six-month KIBOR slipped 64 bps to 11.44%.
The nine-month and one-year rates also saw sharp drops. The nine-month KIBOR settled at 11.53% after a 73-bps cut, and the one-year tenor fell by 75 bps to 11.51%.
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Inflation and Monetary Policy Outlook
The SBP’s Monetary Policy Committee (MPC) cited easing inflation as the primary driver for the rate cut. It noted a sharp decline in inflation during March and April, largely due to reduced electricity prices and continued moderation in food inflation. Core inflation also fell in April, benefiting from favorable base effects and subdued demand.
The MPC now expects a more stable inflation outlook compared to its previous assessment. However, it remains cautious about ongoing global uncertainties, including trade tariffs and geopolitical risks, which could pose challenges for Pakistan’s economy.
Economic Conditions Show Improvement
During a post-policy briefing, SBP Governor Jameel Ahmad stated that key economic indicators have been gradually improving. The external sector also shows resilience, with foreign exchange reserves rising year-over-year. However, he acknowledged some recent pressure on reserves due to debt repayments.
Regarding new U.S. tariff policies, the governor said the final impact remains uncertain and will depend on how developments unfold over the next 90 days.
The SBP emphasized maintaining a measured approach to monetary policy in the face of both domestic recovery and external challenges.
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