Bulls break 117,000 barrier on SBP rate cut impact

The capital market extended its upward trajectory on Tuesday, surpassing the 117,000-point mark for the first time. Investor optimism remained strong, buoyed by the State Bank of Pakistan’s (SBP) policy rate cut yesterday, improving macroeconomic indicators, and expectations of sustained economic recovery.

The Pakistan Stock Exchange’s (PSX) benchmark KSE-100 Index gained 869.76 points, or 0.75%, to reach an intraday high of 117,039.17 during early trading. The index touched a low of 114,868.63 before recovering.

The SBP’s decision to slash the policy rate by 200-basis point (bps) to 13% has sparked renewed interest in equities. The state bank’s decision marked its fifth consecutive rate cut, signalling an accommodative monetary stance to spur economic growth.

The policy adjustment was prompted by a sharp decline in inflation, which fell to 4.9% in November — the lowest level since April 2018. With real interest rates now at a highly positive 10%, analysts expect liquidity to shift from fixed-income instruments into equities, providing a significant boost to market activity.

SBP Governor Jameel Ahmed, speaking on Geo News programme “Aaj Shahzeb Khanzada Kay Saath”, acknowledged that inflation could temporarily rise over the next three to four months due to the base effect and pipeline factors. 

However, he expressed confidence that inflation would stabilize within the medium-term target range of 5-7% by June 2025. He noted that the full impact of the policy rate cut would materialize over the next four to six quarters, driving economic recovery and growth.

Ahmed further assured investors of Pakistan’s ability to meet its foreign debt obligations, supported by foreign reserves standing at $16.6 billion as of December 6, 2024. Of this, SBP reserves climbed to $12.051 billion, marking the highest level since March 2022.

Investor optimism continues to be bolstered by improving macroeconomic stability. Remittance inflows surged 29% year-on-year in November to $2.9 billion, contributing to foreign exchange reserves and economic stability. 

The Current Account Deficit (CAD) narrowed sharply, falling by 79% year-on-year to $217 million in the first two months of FY2025. This improvement was supported by strong remittance inflows and stable export earnings.

Exports are projected to rise to $33 billion by the end of FY2025, while remittances are expected to reach $33.5 billion, driven by easing global inflation and government incentives encouraging formal remittance channels.

The banking sector also demonstrated resilience, with the Advance-to-Deposit Ratio (ADR) improving to 47.8% in November, up from 44.3% in October. This improvement reflects banks’ efforts to meet the mandatory lending targets to avoid additional taxation.

Additionally, the government’s successful auction of Treasury Bills (T-bills) last week raised Rs1.256 trillion. Yield reductions included the biggest cut of 100 basis points (bps) for three-month papers, lowering the rate to 11.99% from 12.99%. Six-month papers saw an 89bps reduction to 11.99%, while the yield on 12-month papers was trimmed by 5bps to 12.3%.

Signs of economic recovery remain evident, particularly in consumer activity. Passenger car sales rose by 52% year-on-year in November, while cumulative growth for the first five months of FY2025 stood at 50%, highlighting a revival in demand and consumer confidence.

The stock market extended its record-setting spree on Monday on the back of aggressive value-hunting, helping the KSE-100 Index achieve a new milestone above 116,000. The KSE-100 Shares Index gained 1,867.61 points, or 1.63%, to close at 116,169.41, after hitting an intraday high of 116,681.59 points.

The PSX’s continued rally reflects strong investor sentiment underpinned by easing inflation, improving macroeconomic indicators, and fiscal reforms.

Analysts remain optimistic that the SBP’s rate cut, combined with ongoing economic stability and liquidity inflows, will maintain the market’s upward momentum in the weeks ahead.