KARACHI: Pakistan’s stocks extended their stellar rally on Tuesday, driven by optimism over potential interest rate cuts, with the Pakistan Stock Exchange’s (PSX) benchmark KSE-100 Shares Index closing at a record high of 85,663.97, up 753.68 points or 0.89%. The index also reached an intraday peak of 85,807 points.
Analysts predict a policy rate reduction of up to 400 basis points (bps) this year, which has fueled interest in rate-sensitive sectors such as technology, real estate, financials, utilities, and consumer discretionary.
Khurram Schehzad, CEO at Alpha Beta Core, attributes the rally to the timely approval of an International Monetary Fund (IMF) loan deal and a steady decline in the inflation rate. “Consumer price inflation is expected to fall below 6-6.5% in the coming months,” Schehzad said. He noted that November would be crucial due to two major events: the US presidential election, which will influence the global economy, and the State Bank of Pakistan’s (SBP) monetary policy meeting, expected to cut the policy rate by at least 220 bps.
Schehzad anticipates the SBP’s Monetary Policy Committee will meet again in December and possibly slash rates by another 200 bps, totaling a 400 bps reduction before year-end.
On Monday, the KSE-100 index surged past the 84,900-point mark, driven by a massive rally in the energy sector and growing optimism over potential interest rate cuts, ending at an all-time high of 84,910.29 points, up 1,378.34 points or 1.65%.
Investors are betting on the SBP extending its hawkish monetary policy as inflation has steadily retreated. Analysts speculate that the SBP might revise interest rates downward even before its next scheduled meeting, with expectations of a policy rate cut of up to 400 bps by December.
The anticipation of the central bank’s rate-cutting cycle has rekindled foreign interest in Pakistan’s capital market. According to the Pakistan Bureau of Statistics (PBS), CPI-based inflation fell to 6.9% year-on-year in September 2024, the lowest since January 2021, down from 9.6% in August, driven by a high base effect, easing commodity and energy markets, and a stable currency.
Last month, the SBP’s Monetary Policy Committee slashed the key policy rate by 200 bps to 17.5% from 19.5%, citing a steep fall in both headline and core inflation over the past two months.
