Pakistan’s Karachi Interbank Offered Rates (KIBOR) moved higher on Thursday, October 29, as money market rates adjusted following the State Bank of Pakistan’s (SBP) decision to raise the policy rate by 50 basis points to 12%. The increase was most pronounced across the three-month to one-year tenors, indicating a stronger upward adjustment in borrowing benchmarks for longer periods. The latest movement comes amid persistent inflationary pressures and uncertainty surrounding the domestic and international economic outlook. KIBOR serves as an important reference rate for lending and financing in Pakistan, influencing the pricing of various bank loans and other financial products. Changes in these rates can affect borrowing costs for businesses and consumers, particularly where financing terms are linked to prevailing interbank benchmarks.
The three-month KIBOR increased by 21 basis points on a day-on-day basis, reaching 12.19% on the bid side and 12.44% on the ask side. The six-month rate rose by 18 basis points to 12.39% bid and 12.64% ask, while the nine-month tenor gained 17 basis points to 12.45% bid and 12.95% ask. The one-year KIBOR recorded the largest daily increase among the reported tenors, climbing 23 basis points to 12.54% bid and 13.04% ask. These increases indicate that longer-term interbank borrowing benchmarks have responded more significantly to the revised monetary policy environment than shorter-term rates. The difference between bid and ask rates also remains relevant for market participants assessing interbank funding conditions and the potential cost of financing over different periods.
Shorter-term KIBOR rates recorded comparatively limited changes. The one-week rate edged up by one basis point to 11.86% bid and 12.36% ask, while the two-week rate increased by three basis points to 11.88% bid and 12.38% ask. The one-month tenor also gained three basis points, moving to 11.90% bid and 12.40% ask. The contrast between the relatively modest movement in shorter tenors and the stronger increases in longer maturities highlights how market pricing can differ across funding periods. Businesses and financial institutions often monitor these benchmarks when evaluating short-term liquidity requirements, working capital facilities and longer-duration borrowing arrangements. However, the effect on individual borrowers depends on the terms of their financing agreements, including the applicable benchmark, spread and repricing schedule.
The upward movement is also evident when the latest rates are compared with levels recorded on October 27. Over that period, the three-month bid rate increased by 23 basis points from 11.96%, while the six-month bid rate climbed by 19 basis points from 12.20%. The nine-month rate rose by 20 basis points from 12.25%, and the one-year rate advanced by 25 basis points from 12.29%. These changes show that the increase in longer-tenor benchmarks has extended beyond a single daily adjustment. The revision follows the SBP’s 50-basis-point policy rate increase, which took the benchmark to 12%. While the policy rate sets the central bank’s main monetary policy signal, KIBOR is also influenced by banks’ funding conditions, expectations about future interest rates and assessments of inflation and liquidity in the financial system.
The SBP’s Monetary Policy Committee said the policy rate increase was in line with market expectations and intended to keep inflation expectations anchored, limit second-round effects from supply shocks and guide inflation back towards the central bank’s target range of 5% to 7%. The committee also said the move would help maintain an adequately positive real policy rate on a forward-looking basis. Inflation remains a key concern, with headline inflation reaching 10.3% year-on-year in September, higher than the committee had anticipated. Core inflation remained around 8.4%, indicating that underlying price pressures also require close monitoring. The MPC identified renewed escalation in the Middle East conflict and domestic wheat supply frictions as major factors contributing to elevated prices, with both expected to continue affecting the outlook over the coming months.
Pakistan’s external position and economic growth projections remain important considerations for monetary policy and market expectations. The SBP’s foreign exchange reserves stood at around $21.5 billion, equivalent to approximately three months of import cover. Governor Jameel Ahmed projected that reserves could reach $23 billion by December 2026 and $25 billion by June 2027. Meanwhile, the MPC expects real gross domestic product growth to remain between 3.5% and 4.5% in fiscal year 2027. The direction of KIBOR will remain significant for banks, businesses and borrowers as they assess financing costs in the months ahead. Higher benchmark rates may increase borrowing expenses for customers whose loans are linked to KIBOR, although the actual impact will depend on individual financing arrangements and repricing terms. The combination of elevated inflation, the revised policy rate and changing expectations about economic conditions will continue to shape Pakistan’s interest rate environment.
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