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SBP’s unexpected interest rate hike takes toll on PSX, plunges over 850 points

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  • “Market wasn’t expecting rate hike, that’s why it reacted,” analyst says.
  • Benchmark KSE-100 index fell below 42,000-barrier during intra-day.
  • Analyst says interest rates at 16% is negative for corporate profitability.

KARACHI: The State Bank of Pakistan‘s unexpected increase in the interest rate shook investors’ confidence on the first day of the week, as the stock market took a hit with the benchmark KSE-100 index losing more than 850 points on Monday. 

The Pakistan Stock Exchange’s (PSX) benchmark KSE-100 index had opened at 42,936.73, however, after losing 865.39 points, or -2.02% the index closed the session at 42,071.34 points.

Investors were concerned over the challenges faced by the beleaguered economy as cash-strapped Pakistan awaits funds from bilateral and multilateral partners. 

The index remained on a downward trajectory, falling below the psychological barrier of 42,000 touching an intra-day low of 41,963.94 points.

In the morning, trading activity began on a negative note and the market fell steadily till midday when it touched its lowest mark for the day. Later, slight buying helped the bourse recoup some losses.

Benchmark KSE-100 index intra-day trading curve. — PSX data portal
Benchmark KSE-100 index intra-day trading curve. — PSX data portal

Analyst Samiullah Tariq laid blame on SBP’s decision to increase the interest rate as a key factor for the drop in the KSE-100 index. 

“[The] market wasn’t expecting a rate hike. That’s why it was reacting,” the head of research at Pakistan-Kuwait Investment Company told Geo.tv

Capital market expert Saad Ali also blamed the “surprise interest rate hike” for the drop, adding that investors may be expecting more hikes given the inflation outlook

“Interest rates at 16% or higher is significantly negative for growth and corporate profitability,” Ali told Geo.tv

At the time the decision was announced by SBP, the markets had closed, which is why the KSE-100 index today went in the red at the opening.

Shares of 350 companies were traded during the session. At the close of trading, 47 scrips closed in the green, 294 in the red, and nine remained unchanged.

Overall trading volumes declined to 244.35 million shares compared with Friday’s tally of 177.29 million. The value of shares traded during the day was Rs6.97 billion.

K-Electric was the volume leader with 29.01 million shares traded, losing Rs0.17 to close at Rs2.60. It was followed by WorldCall Telecom with 22.51 million shares traded, gaining Rs0.06 to close at Rs1.36 and Dewan Farooqui Motors with 13.78 million shares gaining Rs0.06 to close at Rs11.87. 

SBP hikes interest rate to 16% to curtail inflation

On Friday, the Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) Friday raised the key policy rate by 100 basis points to 16% — the highest since 1999.

The central bank, in a statement, issued after the meeting said that the decision reflects the MPC’s view that inflationary pressures have proven to be stronger and more persistent than expected.

“This decision is aimed at ensuring that elevated inflation does not become entrenched and that risks to financial stability are contained, thus paving the way for higher growth on a more sustainable basis,” the MPC said.

The SBP noted that amid the ongoing economic slowdown, inflation is increasingly being driven by persistent global and domestic supply shocks that are raising costs. 

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Changes in the US dollar’s value are directly correlated with variations in gold prices.

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The price of 24-karat gold in Pakistan increased by Rs1500 on Thursday, reaching Rs231,000 per tola. This was another jump in the price of gold in the country.

Dealers reported a comparable surge in the price of 10 grams of 24-karat gold, which is currently trading at Rs198,045 after rising by Rs1285. In addition, the cost of ten grams of 22-karat gold increased significantly, trading at Rs 181,541.

These fluctuations are strongly correlated with shifts in the US dollar’s value, demonstrating the tight connection between gold prices and exchange rates. This emphasizes how local gold markets are impacted by variables related to the global economy.

At Rs2,580, the price of 24-karat silver remains steady right now. The price of gold increased significantly on a global scale as well, rising by $14 to $2,214 per ounce.

It’s critical to understand that changes in the worldwide market can have a substantial impact on gold prices in Pakistan throughout the day. The gold rates that are offered are obtained from reliable sources, mostly situated in Karachi and Multan.

It is recommended that individuals seek the advice of nearby gold merchants and jewellers for the most precise and current information regarding gold prices.

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Pakistan pledged to finish building the TAPI gas pipeline.

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The minister discussed the importance of the TAPI gas pipeline project for Pakistan’s energy needs during a meeting with Turkmenistan’s ambassador to Pakistan, Atadjan Movlamov.

The Minister was congratulated by Ambassador Movlamov on taking office and his commitment to the project was noted.

Dr. Musadik Malik thanked the ambassador for his kind words, acknowledged the support, and promised to maintain the two nations’ friendship. The intergovernmental commission and working group meetings for the project this year were briefed by Atadjan Movlamov.

He invited the Minister to attend the Turkmenistan Energy Forum, which would take place in Paris the following month.

TAPI undertaking
The project is for the construction of a 1,680-kilometer pipeline with a 56-inch diameter that can carry 3.2 billion cubic feet of gas per day (bcfd) from Turkmenistan through Afghanistan and Pakistan to the border between Pakistan and India.

According to the terms of the TAPI agreement, Afghanistan would receive its portion of 0.5 billion cubic feet of gas per day, while Pakistan and India will each receive 1.325 billion cubic feet of gas per day.

In order to carry out the Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline project, Pakistan and Turkmenistan inked a cooperative implementation plan in Islamabad on June 4.

Prime Minister Shehbaz Sharif and a delegation from Turkmenistan, led by Minister of Energy and Water Resources Daler Juma’a, were present at the ceremony.

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The price of gold is still rising in Pakistan.

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According to the All Sindh Sarafa Jewellers Association, the cost of 10 grams of 24 karat gold grew by Rs. 86 to Rs. 196,760 from Rs. 196,674, while the cost of 10 grams of 22 carat gold jumped to Rs. 180,363 from Rs. 180,284.

The price of silver per tola and ten grams stayed at Rs. 2,211.93 and Rs. 2,580, respectively.

According to the Association, the price of gold on the global market rose by $7 to $2,200 from $.2,193.

It is important to note that Pakistani and IMF personnel have agreed at the staff level on the second and final review conducted as part of Pakistan’s Stand-By arrangement.

The International Monetary Fund (IMF) and Pakistan have reached a staff-level agreement on the second and final review of Pakistan’s stabilization program, which is supported by the IMF’s US$3 billion (SDR2,250 million) SBA Agreement. This is according to the official statement released by a team led by Nathan Porter.

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