Stocks continued their ascent on Wednesday, with the KSE-100 Index surpassing the 105,000-point threshold for the first time as a major interest rate cut by the State Bank of Pakistan (SBP) anticipated on December 16.
The Pakistan Stock Exchange’s (PSX) benchmark index soared by 914.49 points or 0.87%, setting a new intraday record at 105,473.56, which reflects ongoing confidence in the market’s bullish trend. Declining inflation bolsters investor optimism, allowing for potential monetary easing. Following Tuesday’s substantial gain of 1,284 points, the market’s upward momentum draws strength from economic optimism.
Since June, the SBP has reduced interest rates by 700 basis points across four consecutive meetings, bringing the rate down to 15%. With November’s CPI inflation at 4.9% below the SBP’s 5-7% target, analysts expect a further reduction of possibly 200 basis points at the upcoming meeting.
A survey by Topline Securities revealed that 71% of respondents anticipate a cut of at least 200 basis points, with varying expectations on the exact reduction. This expectation is supported by a 78-month inflation low, spurred by decreasing food prices and reductions in electricity rates.
Encouraging trade statistics from the Pakistan Bureau of Statistics (PBS) also contribute to positive market sentiment. The trade deficit contracted by 7.39% in the first five months of the fiscal year, with exports up 12.57% and imports increasing by 3.90%.
The substantial easing of inflation from a peak of 38% last year has rekindled investor confidence. Even after a potential 200 basis points rate cut, real interest rates remain significantly above Pakistan’s historical average, indicating room for further monetary policy adjustments.
As the SBP’s December 16 meeting nears, the focus intensifies on potential rate adjustments. With inflation trending downwards and macroeconomic conditions stabilizing, the PSX is well-positioned for continued robust performance, extending its record-breaking run.
