"Skyrocketing Loan Rates: A Financial Challenge!"

 "Skyrocketing Loan Rates: A Financial Challenge!"

"Central Bank's Q1-FY22 Report Shows Private Sector Credit Surge."

Commercial banks have raised lending rates to a record high of 24.62%, suggesting the central bank may increase its benchmark policy rate to a new all-time high next week. This surge in lending rates has negatively impacted the government, the largest borrower from commercial banks in recent years. Additionally, it continues to discourage the private sector from borrowing funds for their businesses, prolonging economic challenges. Market speculation indicates the central bank may raise the policy rate by 1.5 percentage points to 23.5% on September 14 to address high inflation caused by rising power and petroleum prices.

The central bank reported that commercial banks increased the benchmark six-month Karachi Inter-bank Offered Rate (Kibor) by 1.02 percentage points to 24.62% on Thursday compared to 23.60% on Wednesday. This surge in Kibor followed the government's high borrowing cost of nearly 25% when it borrowed Rs1.33 trillion for three to 12 months.

Data indicates that the cut-off yield on three-month T-bills surged by 1.62 percentage points to a record high of 24.49%, reaching 24.78% on six-month papers, and rising sharply by 2.13 percentage points to 25.06% on 12-month instruments. Out of the total new debt raised, the government borrowed Rs1.25 trillion by selling three-month T-bills to commercial banks.

Economist Sana Tawfik of Arif Habib Limited anticipates the SBP may raise the policy rate by 150 basis points to 23.5% in September's policy meeting to address persistently high inflation levels.