SBP Rate Cut
The Pakistan Stock Exchange (PSX) continued its upward trajectory on Tuesday, surpassing the 117,000-point mark for the first time, driven by investor optimism.
The recent 200 basis points (bps) cut in the policy rate by the State Bank of Pakistan (SBP) has sparked renewed interest in equities, further fueled by improving macroeconomic indicators and the prospects of sustained economic recovery.
The KSE-100 Index rose by 869.76 points, or 0.75%, reaching an intraday high of 117,039.17, although it briefly touched a low of 114,868.63 before recovering.
According to Samiullah Tariq, Head of Research at Pak-Kuwait Investment Company, some profit-taking was observed following the recent surge in the market, but investor sentiment remained positive.
The SBP’s fifth consecutive rate cut, lowering the policy rate to 13%, has been viewed as an accommodative measure aimed at stimulating economic growth. The decision was based on a sharp decline in inflation, which dropped to 4.9% in November, the lowest level since April 2018.
This decrease in inflation has contributed to real interest rates rising to a highly positive 10%, which analysts believe will drive liquidity away from fixed-income instruments and into equities, boosting market activity.
SBP Governor Jameel Ahmed acknowledged that inflation could temporarily rise over the next few months due to base effects and pipeline factors. However, he expressed confidence that inflation would stabilize within the target range of 5-7% by June 2025.
He also assured investors that Pakistan would be able to meet its foreign debt obligations, with foreign reserves at $16.6 billion as of December 6, 2024, including SBP reserves of $12.051 billion, the highest since March 2022.
Investor optimism has been further bolstered by strong remittance inflows, which surged 29% year-on-year in November, contributing to the growth in foreign exchange reserves.
The current account deficit (CAD) narrowed sharply by 79% in the first two months of FY2025, supported by strong remittances and stable export earnings. Exports are projected to rise to $33 billion by FY2025, while remittances are expected to reach $33.5 billion.
The banking sector also demonstrated resilience, with the Advance-to-Deposit Ratio (ADR) improving to 47.8% in November, up from 44.3% in October, reflecting banks’ efforts to meet mandatory lending targets.
Moreover, the government’s successful auction of Treasury Bills (T-bills) last week raised Rs1.256 trillion, with significant yield reductions on short- and long-term papers, further enhancing investor confidence.
Signs of economic recovery are also evident in consumer activity, with passenger car sales rising by 52% year-on-year in November, and cumulative growth for the first five months of FY2025 standing at 50%. This surge in sales reflects a revival in consumer demand and confidence.
The PSX’s rally continues to reflect strong investor sentiment, underpinned by easing inflation, improving macroeconomic indicators, and ongoing fiscal reforms.
Analysts remain optimistic that the SBP’s rate cut, combined with improving economic stability and liquidity inflows, will maintain the market’s upward momentum in the coming weeks. The stock market’s performance remains a positive signal for Pakistan’s economic recovery as investors show confidence in the nation’s growth prospects.
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