KARACHI, July 29: The banks traded money at a reduced rate on Tuesday as desired by the State Bank of Pakistan despite their reluctance to bring down the Karachi Inter-Bank Offered Rate (Kibor) with immediate effect.

Kibor fell to 13.48 per cent from 14.20-30 a day earlier, bankers said, adding it was a wide difference as billions of rupees are borrowed and paid daily.

In a meeting, attended by the CEOs and other officials of commercial banks on Monday, SBP Governor Dr Shamshad Akhtar had warned banks to bring down Kibor between 13 and 13.5 per cent or face harsh action on violations.

Banks showed their dismay at the drop of the rate as it deprived them of billions of rupees. On Monday, six-month Kibor was quoted at 14.24 per cent. On Tuesday, the SBP wanted to see the rate at 13 to 13.5 per cent.

A senior economist and consultant to commercial banks said that the banks were earning much more than what they deserved.

“Kibor dropped as there was a capacity to absorb the SBP demand of lowering the rate,” he said.

However, bankers said there was no such gap to be filled.

Kibor on Tuesday was not genuine. It was a forced rate which the SBP wanted to see at a time when it was going to unveil its monetary policy, said a senior banker.

Several bankers said that the money was not available at Kibor rate on Tuesday. The real inter-bank rate was higher by at least 1.5 per cent what the Kibor showed.

Analysts dismissed this claim and said that the lowering of Kibor was a good sign because the gap between discount rate and Kibor was too wide.

When the discount rate was 12 per cent, the Kibor was showing a rate of 14.20 per cent.

Now the SBP further increased the discount rate by 100 basis points, making the discount rate as 13 per cent.

Kibor could not be retained at 13.3 per cent after the discount rate reaches 13 per cent, said the banker, adding the Kibor would increase within a week.

The SBP increased the discount rate to curtail the flow of credits causing inflation which has reached 21.5 per cent in June.

Despite a tight policy, the monetary growth was higher.

SBP data showed that the broad money grew by over 15 per cent during the year ended on June 30.

Kibor is quoted on a daily basis by a large number of banks to indicate the cost of borrowing and lending money for tenors, ranging between one week and three years.

The most important of these being the six-month tenor rate which has been used since 2003 as a benchmark to price loans, TFCs, deposits, interest rate swaps, cross currency swaps and a host of financial products.

Bankers said that the prevailing tight monetary policy and expectations of further tightening have resulted in Kibor remaining above the SBP’s own discount rate.