KARACHI: The benchmark six-month Karachi Inter-Bank Offered Rate (Kibor) on Monday hit a 13-month low at 12 per cent, supporting the bankers and analysts foreseeing a significant cut in the T-bills yields and policy discount rate in the next monetary policy review.

The State Bank of Pakistan said that the monetary policy would be reviewed on July 25.

Inflation has been falling for the last couple of months to settle at 13.13 per cent in June 2009, a 16-month low, and is now lower than the policy discount rate.

Analysts said the SBP could cut the policy discount rate up to 150 basis points.

They said the new fiscal year's first auction of Treasury bills, scheduled for Wednesday, could see a further cut in the rates that would be reflective of lower inflation and possible cut in the discount rate.

The higher discount rate resulted in record low credit off-take, while private sector borrowing fell below the positive line during 2008-09. 'We expect a cut-off yield of 11.50-11.75 per cent for one-year T-bill in the upcoming auction, a decline of 50-75 basis points from the last 12.25 per cent,' said Mohammad Sohail of Topline Securities. In the previous auction, the yield on one-year paper was cut by 100bps.

Analysts said the SBP would attract huge money despite a possible cut in T-bills rates as banks have been relying heavily on investing in treasury bills for easy return.

The State Bank data showed that during the first half of the calendar 2009, the banks investment in the government papers recorded a growth of 37.2 per cent.

The six-month data showed that the banks' gross advances could hardly improve by 0.1 per cent. This was against the 11 per cent growth during the same period of last year.

However, the banks succeeded to increase the deposits as it increased by 9.3 per cent during the period under review.

'Banks may improve the liquid base with surplus fund during this fiscal year, but the private sector demand is still very low which means credit growth would remain below the desired levels,' said a senior banker.

Banks were of the view that slow economic growth would depress the credit demand from the private sector despite expected low interest rates.

The government has projected an economic growth target of 3.3 per cent for the current fiscal year, but it looks difficult to be achieved unless global economy starts recovering from the recession.