The Pakistan Stock Exchange’s benchmark KSE-100 index plummeted nearly 800 points on Monday, with the slump being ascribed to the central bank’s surprise move to boost the policy rate by 100 basis points on Friday evening.
The index experienced a precipitous decline immediately following the opening bell, falling more than 600 points to 42,282.48 in the first 30 minutes of trading. It eventually closed at 42,071.34, down 865.39 points or 2.02pc.
Raza Jafri, the head of research at Intermarket Securities, stated that the market opened significantly in the red as a result of rising interest rates and prolonged political instability following Imran Khan’s threat to dissolve the Punjab and Khyber Pakhtunkhwa parliament.
“Support may come later as a result of positives such as Pakistan’s intention to repay its maturing Sukuk ahead of schedule and the end of the long march,” he added.
Director of First National Equities Limited Amir Shehzad also stated that the market was under pressure due to the “unexpected” 100 basis point hike in the policy rate.
He urged that investors should follow the approach of buying the dip — a term used for the acquisition of an asset after it has decreased in price — as oil prices were lowering in the international market.
Moreover, he assessed that the hike in the policy rate was due to the International Monetary Fund’s (IMF) “pressure” and that the “release of the next instalment by the IMF would now be easier”.
“Inflows are also expected and things seem to be settling politically too,” he added, adding that in such a scenario, buy-on-dip approach would be suitable.
The SBP hiked its benchmark policy rate by 100 basis points to a 24-year high of 16pc last week in a decision that went against market expectations but, according to the central bank, was “aimed at ensuring that elevated inflation does not become entrenched”.
The decision reflected the opinion of the SBP monetary policy committee (MPC) that “inflationary pressures have proven to be stronger and more persistent than anticipated,” according to a statement issued by the central bank following a committee meeting.
The move raises the SBP interest rates hikes to 625 basis points this year.