After a 0.25% increase in Policy Rate by State Bank of Pakistan and its decision to roll back Monetary Stimulus, Money Market Yields have increased by more than 1%.
The SBP decision, came after Governor SBP was quoted to have said that, tough decisions regarding economy will be taken. While Federal Finance Minister also have said, that it was Government’s mistake to have prolonged the Monetary Stimulus.
The Money Market yields took influence and were up by 100bps compared to minimal increase of 25bps by the SBP.
Benchmark 6 Month KIBOR increased to 16 months high level as it stood at 8.11% compared to 7.54% at the start of the month.
1-Year KIBOR was seen at 8.75% compared to 7.99% at the start of the month.
In the Bond Market, 6-Months T-Bill was quoted at 8.01% compared to 7.4% level at the start of the month. Likewise, 1 Year Bond was traded at 8.58% compared to previous level of 7.59%, marking a 100bps increase.
The yields reflect clear expectations of the market that Policy rate will be adjusted sooner than previously forecasted.
A senior Treasury Official of a Commercial Bank, on condition of anonymity, told Business Tribune that Bank expected up to 100bps futher increase in the Policy rate in subsequent Two Monetary Policy i.e till January-2022.
The resumption of talks with IMF and government’s intention to accept some of the IMF terms are likely to impact Inflation an Real Interest Rates.
SBP recent Monetary Policy Statement clearly highlights, SBP aim to achieve Positive Real Interest Rate. Furthermore, IMF has previously pressured the SBP to keep Real Interest Rates at positive level for Fiscal and Monetary discipline.
With Inflation likely to average 9% for FY2022, Policy rate is likely to be increased to a range of 9% to 10%.
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