Stocks continued their record-breaking streak on Wednesday, with the Pakistan Stock Exchange (PSX) crossing the 105,000-point threshold for the first time. The surge was driven by growing expectations of a significant interest rate cut by the State Bank of Pakistan (SBP) in its upcoming monetary policy meeting on December 16.
The benchmark KSE-100 Index surged 914.49 points, or 0.87%, reaching a new intraday high of 105,473.56. This increase signals sustained market confidence and optimism about the economic outlook.
The KSE-100’s historic momentum reflects growing optimism around Pakistan’s economy, as inflation continues to fall, creating room for further easing of monetary policy. This follows impressive gains on Tuesday when the index added 1,284 points, closing at 104,559.07.
The SBP has already reduced interest rates by 700 basis points (bps) over four consecutive meetings since June, bringing the rate down to 15%. With inflation now at its lowest level in over six years, experts are predicting another significant reduction, potentially by 200 bps, in the upcoming policy meeting.
November’s Consumer Price Index (CPI) inflation came in at 4.9%, well below the SBP’s target range of 5-7%, further bolstering expectations of rate cuts. Inflation is expected to remain in single digits, leaving ample space for further monetary easing.
A poll by Topline Securities revealed 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 its lowest in 78 months, driven by a sharp decline in food prices and negative electricity price adjustments, increasing the likelihood of a rate cut.
Supporting the positive investor sentiment, trade data from the Pakistan Bureau of Statistics (PBS) showed a 7.39% narrowing of Pakistan’s trade deficit during the first five months (July-November) of the fiscal year, standing at $8.651 billion, compared to $9.341 billion during the same period last year. Exports rose by 12.57% to $13.69 billion, while imports increased by 3.90% to $22.342 billion. The trade deficit for November narrowed by 18.60% compared to the same month in 2023.
The reduction in inflation—down from a peak of 38% last year—has revitalized investor confidence. Even after a 200 bps rate cut, real interest rates would still be 810 bps, significantly higher than Pakistan’s historical average of 200-300 bps.
November’s CPI inflation stood at 4.9%, down from 7.2% in October and 29.2% in November 2023, marking a sharp turnaround. During the first five months of FY25, inflation averaged 7.88%, compared to 28.62% in the same period last year.
Wednesday’s gains extend the PSX’s record-breaking streak, with the KSE-100 index crossing the 105,000 mark for the first time. Analysts attribute this rally to improving macroeconomic indicators, strong trade performance, and expectations of further monetary easing.
With inflation on a steady decline and macroeconomic stability improving, the PSX is poised for continued growth, maintaining its historic performance as the SBP’s December 16 meeting approaches.
