With some 50 basis points cut in key policy rate, the State Bank of Pakistan overnight reverse repo (ceiling) rate has been reduced from 10 percent to 9.50 percent p.a. According to DMMD Circular No 25 of 2012, issued on Friday night, the SBP overnight repo facility will be available at 6.50 percent p.a. This will serve as the 'floor' for the interest rate corridor as announced by the above referenced circular.

Hence, the floor and ceiling levels for the Interest Rate Corridor are 6.50 percent and 9.50 percent p.a. respectively, depicting a width of 300bps. These changes will be effective from December 17, 2012. According to SBP in case an eligible institution accesses either of the above facilities more than seven times during a given quarter, a spread of plus/minus 50bps will be applied over and above the applicable SBP overnight reverse repo & repo rates, respectively for the remainder of the same quarter. For the current quarter, the seven instances remain effective from 8th October, 2012 as communicated in DMMD circular No 20 dated 5th October, 2012. While all other instructions on the subject shall, however, remain unchanged.

Copyright Business Recorder, 2012