The capital market broke new ground on Wednesday, breaching the historic 105,000-point level as expectations of a sharper interest rate cut gained momentum, fuelled by a consistent drop in inflation.
The Pakistan Stock Exchange’s (PSX) benchmark index climbed 735.32 points, or 0.70%, to hit a new intraday high of 105,294.39, reflecting sustained confidence in the market’s upward trajectory.
The KSE-100’s record-breaking momentum reflects growing optimism around the economy as inflation continues to decline, creating room for further monetary easing.
Wednesday’s session follows Tuesday’s impressive gains when the market closed at 104,559.07, adding 1,284 points.
The SBP has already slashed interest rates by 700 basis points (bps) in four consecutive meetings since June, bringing the rate to 15%.
Experts anticipate another substantial reduction, potentially by 200 bps, in the upcoming policy meeting as inflation eases to its lowest level in over six years.
The CPI inflation for November clocked in at 4.9%, well below the SBP’s target range of 5-7%. With inflation expected to remain in single digits, the current policy rate of 15% provides significant room for further rate cuts.
A poll conducted by Topline Securities shows that 71% of respondents expect a minimum cut of 200 bps, with 63% predicting exactly 200 bps, 30% expecting 250 bps, and 7% anticipating a reduction of more than 250 bps.
This reading places inflation at a 78-month low, reinforcing the likelihood of a rate cut. The decline is driven by faster food disinflation and negative electricity price adjustments.
The trade data released by the Pakistan Bureau of Statistics (PBS) also supported positive investor sentiment.
Pakistan’s trade deficit narrowed by 7.39% during the first five months (July-November) of the current fiscal year, standing at $8.651 billion compared to $9.341 billion during the same period last year.
Exports rose by 12.57%, reaching $13.69 billion, while imports increased by 3.90% to $22.342 billion during this period. November’s trade deficit narrowed even further, dropping by 18.60% year-on-year to $1.589 billion compared to $1.952 billion in November 2023.
The significant reduction in inflation, which peaked at 38% last year, has revitalised investor confidence.
Post a 200 bps rate cut, real interest rates would still stand at 810 bps, which is higher than Pakistan’s historic average of 200-300 bps.
CPI inflation for November stood at 4.9% year-on-year, down from 7.2% in October and 29.2% in November 2023.
This marks a sharp turnaround, with inflation averaging 7.88% during the first five months of FY25, compared to 28.62% in the same period of FY24.
Wednesday’s gains extend the PSX’s streak of record-breaking sessions, with the KSE-100 index crossing the 105,000-point mark for the first time.
Market analysts credit the rally to improving macroeconomic indicators, strong trade performance, and the anticipation of further monetary easing.
As the SBP’s December 16 meeting approaches, investors remain focused on potential policy rate adjustments.
With inflation on a steady downward trend and macroeconomic stability improving, the PSX appears poised for sustained growth, continuing its historic performance.
