The capital market surged on Friday, fuelled by mounting expectations of an imminent policy rate cut, significant strides in circular debt restructuring, and sustained bullish investor sentiment.
Investor confidence drove aggressive buying across key sectors, with cement and energy stocks leading the rally ahead of the highly anticipated State Bank of Pakistan (SBP) monetary policy announcement on March 10.
Adding to the optimism, a decline in the Sensitive Price Index (SPI) reinforced projections of lower inflation for March, strengthening the case for monetary easing and further propelling market momentum.
The Pakistan Stock Exchange’s (PSX) benchmark KSE-100 Index gained 685.52 points, or 0.6%, closing at 114,398.69. The benchmark index touched an intraday high of 114,721.58, while the lowest level was recorded at 114,169.19.
“One factor driving the market is the news of circular debt resolution, which has led to a rise in PSO and other related stocks. Secondly, the cement sector is performing well, most likely in anticipation of a policy rate cut expected on March 10. The third factor is the positive momentum continuing from yesterday, supported by strong liquidity in the market,” said Sana Tawfik, Head of Research at Arif Habib Limited.
“Lastly, the SPI (Sensitive Price Index) figure has shown a decline, which reinforces expectations that March’s inflation figures will also come in lower, providing another positive signal for the market,” she added.
The federal government is planning to borrow Rs1.25 trillion from commercial banks to restructure old loans and retire circular debt. According to Topline Research, bank presidents met with government officials in Islamabad on Thursday to discuss the modalities of the borrowing plan, which has also been shared with the International Monetary Fund (IMF).
While discussions are ongoing, some banks have expressed concerns over the rate being offered by the government, reportedly set at KIBOR minus 1%. An agreement is expected in the coming days.
Meanwhile, the country’s inflation rate saw a sharp decline in February 2025, dropping to 1.5% year-on-year (YoY), marking the lowest level since September 2015, according to the Pakistan Bureau of Statistics (PBS).
Inflation declined 0.9% month-on-month in February, compared to a 0.2% increase in January. The average inflation rate for the first eight months (July-February) of the fiscal year stood at 5.85%, significantly lower than the 27.96% recorded in the same period last year. The decline in inflation has reinforced expectations of further monetary easing when the SBP announces its next policy decision on March 10.
On the external front, the central bank foreign exchange reserves increased by $27 million to $11.25 billion during the week ending February 28, the SBP reported on Thursday.
However, total liquid foreign reserves held by the country fell by $52 million to $15.874 billion, as commercial bank reserves declined by $79 million to $4.624 billion. Despite the slight increase in SBP reserves, external debt repayments and a widening current account deficit remain key risks to overall stability.
The PSX had already witnessed a strong recovery on Thursday, with the benchmark KSE-100 Index surging by 1,459.42 points, or 1.3%, to close at 113,713.18 points. The highest index of the day was recorded at 113,871.22 points, while the lowest level stood at 112,446.01.
