Business

KARACHI: Benchmark 6-month Treasury bills rates were increased on Wednesday despite one per cent cut in the policy discount rate recently allowing the interest rate to remain high.

The 6-month cut-off yield rose by 20 basis points to 13.18 per cent supporting the rising trend of Karachi Inter-Bank Offered Rate (Kibor).

The higher interest rate is in inconformity with the International Monetary Fund (IMF) programme as the donor agency has advised Pakistan to keep the interest rate high unless the inflation falls to a single digit. The main inflation (Consumer Price Index - CPI) is still over 19 per cent despite hopes of improvement being expressed by the government as well as the State Bank.

The Kibor, which is a barometer of interest rate, was at 13.26 per cent for 6 months on April 21 before the last Treasury bills auction. The Kibor kept on increasing as it reached 13.35 per cent on Wednesday.

The State Bank has been under immense pressure from the business and industrial sectors to reduce the policy interest rate as their cost of doing business went much higher than the regional countries.

The State Bank at the time of Monetary Policy announcement in the middle of last month reduced the policy rate by one per cent, which was treated as token reduction by the market.

Most of the market players saw no hope of improvement with the token reduction in policy interest rate, which proved correct as reflected from the poor credit growth for the private sector. It fell to just 13 per cent of what it was during the first ten months of the current fiscal year.

The State Bank picked up Rs71.772 billion and out of this the central bank picked up Rs64.266 billion for 12 months at the rate of 13.29 per cent, slightly increased by 2 basis points.

The SBP raised Rs4.981 billon for 6-month and Rs2.524 billion for three months.
Experts said the SBP was making efforts to keep the interest rate as high as required by the IMF.

Last month, the governor State Bank said the inflation would come down to a single-digit by next fiscal year. The next fiscal year will begin two months from now while the prevailing inflation rate is above 19 per cent.

‘The higher interest rate has impacted negatively on the economy as the performance of both the trade and industry could touch the lowest in the first decade of this new century,’ said a senior banker.

He said the banking industry was itself feeling the negative impact of higher interest rate despite the fact their net interest income has increased.

However, the high interest rate resulted in the collapse of series of businesses that mounted the non-performance loans (NPLs) setting new record during the current fiscal year.

‘The poor credit growth to the private sector is the outcome of higher interest rate that has threatened the overall economic growth despite strong agriculture growth during the current fiscal year,’ said the banker.