PSX hits new high amid hopes of interest rate cut

The Pakistan Stock Exchange (PSX) reached a new milestone on Wednesday, crossing the 105,000 points mark for the first time. The KSE-100 Index rose by 914.49 points, or 0.87%, to hit an intraday high of 105,473.56, continuing its record-breaking streak.

This rise in the stock market comes amid growing expectations that the State Bank of Pakistan (SBP) will reduce interest rates in its upcoming meeting on December 16. Analysts believe that a rate cut could further boost investor confidence, especially as inflation continues to fall.

The KSE-100’s climb reflects the optimism surrounding Pakistan’s economy. Inflation has decreased, providing room for the central bank to ease monetary policy. On Tuesday, the market had also posted significant gains, closing at 104,559.07 points, up by 1,284 points.

The SBP has already reduced interest rates by 700 basis points in its last four meetings, bringing the rate down to 15%. With inflation now at its lowest level in over six years, experts are predicting another big cut, potentially by 200 basis points. November’s inflation rate stood at 4.9%, well below the SBP’s target range of 5-7%, and this is expected to remain low in the coming months.

A recent survey by Topline Securities shows that 71% of investors expect at least a 200 basis point rate cut. Many believe the SBP will cut the rate by 200 to 250 basis points, with some even expecting a reduction of more than 250 basis points.

The positive momentum in the stock market is also supported by good trade data. Pakistan’s trade deficit narrowed by 7.39% during the first five months of the current fiscal year, dropping to $8.65 billion from $9.34 billion last year. Exports grew by 12.57% to $13.69 billion, and imports rose by 3.90% to $22.34 billion. The November trade deficit also shrank by 18.60% compared to last year.

The drop in inflation, which had reached 38% last year, has been a key factor in restoring investor confidence. If the SBP cuts rates by 200 basis points, the real interest rate would still stand at 8.1%, which is higher than Pakistan’s historical average.