The six-month Karachi Inter-bank Offered Rate (KIBOR) hit a 13-year high amid increasing risks of credit growth and economic contraction caused by surging borrowing costs.
KIBOR is an indicator for lending to consumers and businesses. According to State Bank of Pakistan (SBP) figures, the KIBOR touched as high as 14.1%. This is the highest since February 2009.
During the ongoing fiscal year 2021-22, the six-month KIBOR climbed up by 641 basis points. It remained at 7.69% during the previous year. The fluctuations in KIBOR affects the decision-making power of the public to consume, save, or invest.
Taurus Securities Limited Head of Research Mustafa Mustansir told media that KIBOR was climbing due to growing credit risk in the market and due to the macroeconomic situation.
“Expensive loans will definitely reduce demand for bank credit, especially in case of consumer loans, and loans to SMEs etc,” Mustansir added.
Private sector credit growth was crucial for overall economic growth, Mustansir said. He added that a stoppage in private sector borrowing should affect economic activity also.
The IMF predicts Pakistan’s economic growth rate at 4% in the ongoing fiscal year, worse than a 4.8% target fixed in the budget 2021-22.