PSX surges past 116,000 points on rate cut hopes, macroeconomic stability

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Pakistan Stock Exchange Hits New Milestone Amid Optimism for Rate Cut

Investor optimism propelled the Pakistan Stock Exchange (PSX) to a new record as the benchmark KSE-100 Index surpassed the 116,000 mark. 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 momentum. This surge reflects expectations of a significant policy rate cut by the State Bank of Pakistan (SBP).

Economic Stability Fuels Confidence

Investor confidence has been bolstered by steady remittance inflows, stabilized foreign reserves, and falling inflation. November’s inflation rate dropped to 4.9%, creating a positive real interest rate of 10%, which provides room for monetary easing. The government’s recent 250 basis point cut in National Savings Schemes (NSS) profit rates is also expected to drive funds into equities.

Foreign Reserves and Remittances Strengthen

In November, remittances surged 29% year-on-year to $2.9 billion, helping stabilize foreign reserves at $16.6 billion as of December 6, 2024. The SBP’s reserves rose to $12.051 billion, the highest since March 2022. Additionally, the Current Account Deficit (CAD) narrowed by 79% to $217 million during the first two months of FY2025.

Economic Recovery Gains Momentum

Economic activity shows promising signs of recovery. Exports are projected to reach $33 billion by the end of FY2025, while remittances are forecast to rise to $33.5 billion, supported by government incentives and lower global inflation. Automobile sales jumped 52% year-on-year in November, indicating strong consumer demand.

The banking sector also reported improvement, with the advance-to-deposit ratio (ADR) increasing to 47.8% in November from 44.3% in October, approaching the mandatory 50% threshold.

Liquidity and Market Dynamics

Last week’s Treasury Bill (T-bill) auction raised Rs1.256 trillion, exceeding the Rs1.2 trillion target. Yield cuts of up to 100 basis points in T-bills have further fueled expectations of monetary easing, boosting liquidity for businesses and investors.

Outlook and Policy Rate Expectations

The PSX’s strong performance, driven by easing political uncertainties and improving economic fundamentals, is likely to continue. With the SBP's Monetary Policy Committee (MPC) decision anticipated later today, analysts expect a rate cut of 200 to 500 basis points. Businesses are advocating for an aggressive cut to stimulate growth, while analysts predict a more cautious approach.

A substantial rate cut, coupled with macroeconomic stability and enhanced liquidity, could further bolster investor confidence and sustain the PSX’s upward trend in the weeks ahead.