Shares at the Pakistan Stock Exchange (PSX) slid on Thursday on fears that the central bank may raise the policy rate, which is already at a 25-year-high of 17 percent, in an off-cycle review.
To close at 40,838.51 points, the benchmark KSE-100 index dropped 329.09 points or 0.8 percent. Around 2:50 pm, it hit an intraday low of 395.08 points or 0.95 percentage points.
Raza Jafri, the head of equity at Intermarket Securities, stated that worries about a similar upward movement in the benchmark policy rate were raised by a substantial increase in rates on yesterday’s treasury bill auction.
“As a result, the market is not reacting to strong incoming results as excitedly as it did yesterday,” he said.
Ahsan Mehanti, director of Arif Habib Corporation, agreed that the market had been badly impacted by the rise in yields.
“Stocks were under pressure after government bond yields shot up by 195 basis points to 19.95pc for 3-month T-bills.”
He continued by saying that reports of the rupee’s value decreasing against the US dollar in the open market and the delay in a staff-level agreement between the International Monetary Fund (IMF) and the government for the release of a desperately needed economic bailout both played a catalyst’s role.
Based on the interest rates the government established at the T-bill auction, an increase in interest rates is expected.
The auction on Wednesday resulted in Rs258 billion for the government. The three-month, six-month, and 12-month tenor cut-off rates increased by 195 basis points, 206 basis points, and 184 basis points, respectively, from the previous auction.
Pakistan is taking important steps to obtain IMF funding, such as raising taxes, eliminating all subsidies, and placing artificial currency rate restraints. The international lender reportedly anticipates raising the policy rate, even if the administration anticipates reaching a deal with the IMF soon.
The Monetary Policy Committee of the central bank will meet again on March 16th. Yet, some investors think that the rate increase will shortly occur and might happen as soon as this 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.
The staff-level agreement would open up inflows from friendly countries and other multilateral lenders, as well as allow the lender to release $1.2 billion.
