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Monetary Policy Ups Kibor Rates

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Monetary policy ups KIBOR rates By Mohiuddin Aazim

BENCHMARK KIBOR of all tenures witnessed an increase of 22 to 35 basis points during the week ending December 3 after a 50bps rise in the central bank`s policy rate.
The State Bank of Pakistan raised its discount rate from 13.5 to 14 per cent from November 30 to rein in inflation. During July-October this year, the average CPI inflation was up 14.2 per cent over the same period of last year.
The rate rise—the third in a row so far this fiscal year—came at a time when banks reported a pick up in demand for private sector credit and amidst signals that the government would be borrowing more from banks rather than from the SBP. “It is in this context that the pass-through of policy rate hike is immediate and strong and we hope to sustain it,” said treasurer of a large local bank.
The federal government`s borrowing from the SBP between July and November 19 reached Rs282 billion which, in part, has been responsible for accelerating inflation. Its borrowing from commercial banks, during this period, totalled Rs76 billion.
Bankers say, more recent data should show in coming weeks an increasing trend in government borrowing from commercial banks. They base their anticipation on huge auctioning of treasury bills in the last two weeks.
Credit off-take from the private sector that remained negative in the first quarter has now picked up. And the net borrowing of the private sector between July 1 and November 19 has crossed Rs34 billion. In the same period of the last fiscal year, the private sector had borrowed only Rs13 billion. “So we can say there is a stronger demand for private sector credit this year which is why we hope that current interest rates are sustainable,” said treasurer of another local bank.…...

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