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Finance, Pakistan Stock Exchange, KSE-100, State Bank of Pakistan, Monetary Policy, Interest Rate Cut, Inflation, Remittances, Foreign Reserves, Economic Growth, Treasury Bills, National Savings Schemes, Current Account Deficit, Banking Sector, Liquidity, Stock Market, Investor Confidence, Automobile Sales, Economic Recovery, ADB Loans

PSX Surges Past 116,000 on Hopes of Policy Rate Cut

The Pakistan Stock Exchange (PSX) hit a new milestone, with the KSE-100 Index surpassing 116,000 points. The index rose by 2,220.4 points (1.94%) to reach an intraday high of 116,522.2, continuing last week’s record-breaking rally. This surge reflects investor optimism fueled by expectations of a policy rate cut by the State Bank of Pakistan (SBP).

Key Drivers of Market Optimism
Confidence in the economy has grown due to steady remittance inflows, stabilized foreign reserves, and declining inflation. In November, inflation fell to 4.9%, creating a positive real interest rate of 10% and paving the way for monetary easing. Additionally, a 250 basis point reduction in National Savings Schemes (NSS) profit rates is expected to shift funds into equities, boosting market activity.

Strengthening Economic Indicators

• Remittances: November saw a 29% year-on-year increase, reaching $2.9 billion.
• Foreign Reserves: Reserves stood at $16.6 billion as of December 6, with SBP holdings at $12.051 billion, the highest since March 2022.
• Current Account Deficit: The CAD narrowed by 79% to $217 million in the first two months of FY2025.

Positive Growth Trends
Exports are projected to hit $33 billion by FY2025, while remittances are forecast to reach $33.5 billion. Automobile sales rose by 52% year-on-year in November, reflecting robust consumer demand. Meanwhile, the banking sector’s advance-to-deposit ratio (ADR) increased to 47.8% in November, nearing the 50% benchmark.

Liquidity and Monetary Policy
A recent Treasury Bill auction raised Rs1.256 trillion, exceeding the Rs1.2 trillion target. Yield reductions of up to 100 basis points further support expectations of a rate cut. Businesses are pushing for a significant reduction of 200 to 500 basis points to stimulate growth, while analysts foresee a measured approach.

Outlook
The PSX's upward trajectory, supported by easing political uncertainties and improving economic fundamentals, is expected to continue. A notable rate cut, combined with stable macroeconomic conditions and increased liquidity, could further fuel investor confidence in the coming weeks.