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PSX Rallies as SBP Cuts Policy Rate by 200bps
The PSX rallied today, boosted by a 200bps rate cut from the State Bank and optimism over the upcoming IMF meeting.
ND
by News Desk
2024-09-13
PSX Rallies as SBP Cuts Policy Rate by 200bps

The Pakistan Stock Exchange (PSX) witnessed a significant rally on Friday, with the benchmark KSE-100 index climbing 1.1% in early trading. The surge followed the State Bank of Pakistan’s (SBP) decision to cut its key policy rate by 200 basis points (bps), bringing it down to 17.5% from the previous 19.5%. By the close of trading, the index had settled at 79,333.05 points, up 0.4% from the previous session.

 

This positive momentum was largely attributed to two key developments: the SBP’s aggressive monetary easing and confirmation of an upcoming International Monetary Fund (IMF) board meeting. Scheduled for September 25, the meeting is set to discuss Pakistan’s new Extended Fund Facility (EFF), a vital lifeline for the country's economic stabilization efforts.

 

Market Sentiment Shifts Mohammed Sohail, CEO of Topline Securities, confirmed that the combination of the rate cut and IMF meeting boosted market sentiment. He emphasized the significance of these developments but warned that uncertainties over potential foreign selling, due to FTSE rebalancing, were keeping stock prices in check.

 

On the same note, Yousuf M. Farooq, Director of Research at Chase Securities, remarked that the 200bps rate cut exceeded market expectations and further rate cuts might be on the horizon. He also echoed concerns about foreign investor activity in light of FTSE’s index rebalancing.

 

“But — with the expectation of a stabilising economy on the back of a new IMF programme — a broad-based upward rerating can be expected in the market over the next year,” Farooq commented.

 

Rally Driven by IMF Prospects The central bank’s aggressive rate cut comes at a time when investors are eagerly anticipating the IMF’s review of the $7 billion Extended Fund Facility (EFF). Meeting the IMF's criteria has been crucial for Pakistan to secure the much-needed financial assistance, and the progress in fulfilling these requirements has brought optimism to the market.

 

Awais Ashraf, Director of Research at AKD Securities, stated: “Investors are enthusiastic about meeting all IMF requirements necessary to unlock the EFF, while the SBP’s aggressive monetary easing has further bolstered investor confidence.”

 

Caution Amidst Optimism Despite the rally, analysts remain cautious, particularly about fiscal risks and the likelihood of a mini-budget. Shahab Farooq, Director of Research at Next Capital Limited, noted that while investor confidence has been buoyed by the rate cut and upcoming IMF meeting, fiscal challenges and potential government measures to address them, such as a mini-budget, could temper this optimism.

 

He added that further positive signals from the finance minister and SBP governor, confirming stable external accounts and a downward trend in inflation, were crucial for maintaining the upward momentum in the market.

 

In conclusion, while the PSX rally signals renewed optimism in the country’s economic prospects, particularly with the IMF and SBP’s proactive measures, investors remain watchful of foreign market dynamics and domestic fiscal challenges.

 
Tagged:

IMF

Investment

SBP

PSX

EconomicStability

RateCut

StockMarketRally
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