KARACHI- Despite 100 bps surge in the discount rate, the benchmark Karachi Interbank Offer Rates (KIBOR) for the six-month tenure is likely to remain below 14 per cent in consequence of SBP warning to commercial banks to reduce the widening gap between the discount rate and banks' average ask offer rates to the borrowers. It is pertinent to mention here that Governor State Bank prior to announcing monetary policy for the current fiscal held important meeting with the heads of domestic commercial banks, pulled them up and asked them to scale down KIBOR at appropriate level.     Since new monetary policy announcement, the short-term KIBOR had declined by 79 bps to 13.45 percent as on August 6, 2008 from 14.24 reported on July 28, 208, according to the SBP daily KIBOR statistics. Similarly, the central bank has moped-up Rs 8.300 billion MTBs to date, said SBP statement issued on Thursday while the government stock of Market Related Treasury Bills (MRTBs) has now reached Rs1,053bn almost 10% of GDP. There is unlikely to see major rise in KIBOR and T-bill rtes in the short-run as the capital market was already set to face the probable monetary tightening stance however, capital market sources expect KIBOR and T-bill rates to swell by 20-30bps further in line with hike in discount rate. Experts believe the impact of hike in the discount rate on KIBOR is evident from the past experience, though the magnitude of the change is projected to be lower than previous times. For instance, in Jan 2008, a 50bps rise resulted in 21bps and 39bps hike in 6-month KIBOR and T-bill rates, respectively. Moreover, the huge 150bps hike in the statement of May 2008 resulted in a considerable increase of 182bps and 160bps hike. The latter increase though was a combination of a discount rate increase along with 1% rise in both CRR and SLR.  On spread, historically it as been observed that increase in discount rates is immediately passed on to lending rates, whereas, its pass through impact to depositors occurs after a lag. This time though, due to no major change in lending rates, spreads are likely to remain unchanged and average approx. 6.75% for 2008. Experts foresees neutral impact of SBP's tightening move on the stock market. Borrowing cost or CFS rates are likely to remain in the range of 14-16% in the short run. "As far as impact on stock market is concerned, If KIBOR rises in excess of levels 14.2% (rate pre SBP warning), experts see no impact on E&P companies due to the fact that they have un-leveraged balance sheets. In fact, due to resultant increase in deposit rates in the long run cash-rich E&Ps and Auto Assemblers will benefit as their return on bank deposits will rise. Heavily leveraged sectors, like cement and textile, whose loans are floating (linked with KIBOR), however, will have to face higher interest charges if KIBOR rises steeply", said Frahan Rizvi, analyst at JS Research. "According to JS calculations, 1% increase in lending rates would hit cement and textile sector pre tax profits by around 3% and 5% respectively", he added. It must be noted that the industrialists and business community had sowed their concern over measures by SBP to reduce KIBOR stating that the present monetary policy would negatively affect the banks' lending ability which would further increase KIBOR. The KIBOR depends on the capacity of fund lending and liquidity positions of banks and determines the interbank market by the bank's demand and supply of money.