On Thursday, the Pakistan Stock Exchange (PSX) saw a decline in shares due to concerns that the central bank may raise the policy rate. The policy rate is currently at a 25-year-high of 17 percent, and fears have arisen that the rate may increase even further during an off-cycle review.
The KSE-100 index, which is the benchmark index, lost 329.09 points or 0.8pc and closed at 40,838.51 points. The index reached an intraday low of 395.08 points, or 0.95pc, at approximately 2:50 pm. Intermarket Securities’ Head of Equity, Raza Jafri, commented that the sharp increase in yields on Wednesday’s treasury bill auction led to concerns that there may be a similar upward move in the benchmark policy rate. Jafri also noted that the market did not respond as positively to strong incoming results as it did on the previous day.
Ahsan Mehanti, the Director of Arif Habib Corporation, agreed that the increase in yields negatively impacted the market. Mehanti stated that stocks were under pressure after government bond yields shot up by 195 basis points to 19.95pc for 3-month T-bills. He added that the delay in a staff-level agreement between the International Monetary Fund (IMF) and the government for the release of a much-needed economic bailout, and reports of the rupee’s value plunging against the US dollar in the open market, played a catalyst role in the decline.
Pakistan is implementing several measures to secure IMF funding, including raising taxes, removing blanket subsidies, and artificial curbs on the exchange rate. While the government expects a deal with the IMF soon, reports suggest that the international lender expects the policy rate to be increased. The government raised Rs258 billion in the auction on Wednesday, and the expected increase in the interest rate is based on the rates set during the T-bill auction. The next meeting of the central bank’s Monetary Policy Committee is scheduled for March 16, but some investors believe that the rate hike is imminent and could be done as soon as Friday.
Pakistan needs to reach an agreement with the IMF to avoid the risk of default as its foreign exchange reserves deplete to critical levels, barely enough to cover three weeks of controlled imports. A staff-level agreement would pave the way for the release of $1.2bn from the lender, as well as unlock inflows from friendly countries and other multilateral lenders.
