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Wednesday February 01, 2023

Stocks tumble over 850 points as SBP's surprise interest rate hike dampen sentiment

Analysts cite SBP's decision to increase interest rate as a major trigger point behind today's decline

November 28, 2022
A view of the Pakistan Stock Exchange (PSX) building the main hall in Karachi. — INP/File
A view of the Pakistan Stock Exchange (PSX) building the main hall in Karachi. — INP/File

The Pakistan Stock Exchange (PSX) took a hammering since the word go on Monday in reaction to the State Bank of Pakistan's (SBP) unforeseen interest rate hike.

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

Benchmark KSE-100 index opened at 42,936.73, however, after losing 865.39 points, or -2.02% the index closed the session at 42,071.34 points.

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 blamed 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 the Pakistan-Kuwait Investment Company told The News.

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

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 The News.

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 SBP 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.