PSX rebounds amid rate cut expectations, inflation drop

Stocks kicked off the week on a high note, bolstered by positive economic signals, including rising foreign exchange reserves, a shrinking current account deficit, and declining inflation.

Pakistan Stock Exchange’s (PSX) benchmark KSE-100 Index closed at 114,230.06, gaining 982.77 points, or 0.87%, from the previous session’s close of 113,247.29.

The rally was underpinned by improving inflation data and hopes for a supportive monetary stance by the State Bank of Pakistan (SBP).

Commenting on the trading activity, Ismail Iqbal Securities CEO Ahfaz Mustafa said to Geo.tv, “The market is rallying due to expected monetary policy easing and a general recovery after last week's correction.”

“The momentum from the last trading day is continuing; however, volumes are on the lower side,” he added.

With inflation showing a sharp decline, market participants are anticipating a potential rate cut in the SBP first Monetary Policy Committee (MPC) meeting of 2025, scheduled for January 27.

Inflation dropped to 1.8% year-on-year for the week ending January 9, the lowest level since October 2014, further fuelling hopes of accommodative monetary policy.

Pakistan’s total foreign exchange reserves surged to a three-year high of $18.7 billion in November 2024, supported by rising gold reserves and improved remittance inflows.

The country’s current account surplus stood at $944 million for the first five months of FY25, a sharp turnaround from the $1.67 billion deficit recorded in the same period last year.

Total reserves reached a three-year high of $18.7 billion in November 2024, supported by robust remittance inflows and higher gold prices.

Remittances provided further support, reaching $3.1 billion in December, marking a 29.3% year-on-year increase. For the first half of FY25, cumulative remittances grew by 32.8% to $17.8 billion.

On the fiscal front, Federal Board of Revenue of Pakistan (FBR) Chairman Rashid Mahmood Langrial reiterated the government’s ambitious target of collecting Rs13,500 billion in tax revenue this year, despite a shortfall of Rs386 billion in the first half of FY25.

He called for structural reforms in the tax system to bring the wealthiest individuals into the tax net, highlighting systemic issues on both the taxpayer and collector sides.

Last week, the PSX endured a turbulent ride, largely driven by political and security concerns. The KSE-100 Index shed significant value, closing at 113,247.29 after a four-session losing streak. The decline was exacerbated by aggressive selling by panicked investors, despite positive economic data.

However, institutional value-hunting in the final session provided some respite, signalling the potential for recovery.