The Pakistan Stock Exchange (PSX) began the week on a bullish note, with the benchmark KSE-100 Index showing significant gains during Monday’s trading session. By 12:15 pm, the KSE-100 had risen by 789.04 points, marking a 1.01% increase to stand at 78,818.54. This positive trend comes ahead of the Monetary Policy Committee (MPC) meeting of the State Bank of Pakistan (SBP), which is set to decide on the key policy rate.
Key sectors contributing to the market’s upward momentum included cement, fertilizer, oil and gas exploration companies, and the automobile industry. These sectors’ robust performance helped drive the index higher, reflecting investor confidence in these industries.
The MPC’s meeting is highly anticipated, with market participants speculating on potential changes to the monetary policy. Brokerage firm Arif Habib Limited (AHL) indicated that the SBP might further ease its monetary policy. This expectation is based on a poll conducted by AHL, where 55.7% of respondents predicted a reduction in the policy rate. This sentiment aligns with the recent downward trend in inflation and other improved economic indicators.
This MPC meeting is particularly significant as it follows the recent signing of a staff-level agreement with the International Monetary Fund (IMF) and the introduction of a new state budget. Earlier this month, Pakistan and the IMF agreed on a $7 billion, 37-month loan program under the Extended Fund Facility (EFF). The IMF has stated that the agreement is subject to the approval of its Executive Board and requires “timely confirmation of necessary financing assurances from Pakistan’s development and bilateral partners.”
These financing assurances include rollovers or disbursements on loans from Pakistan’s longstanding allies, such as Saudi Arabia, the United Arab Emirates, and China. Securing these assurances is critical for the IMF program’s approval and subsequent disbursement of funds, which are essential for Pakistan’s economic stability and growth.
In June, the SBP made a notable policy shift by cutting its key interest rate by 150 basis points, bringing it down from an all-time high of 22%. This marked the first rate reduction in nearly four years, aimed at stimulating economic growth amid a significant decline in retail inflation. The move was widely anticipated by market analysts and was seen as a step towards supporting economic recovery.
According to the Pakistan Bureau of Statistics (PBS), Pakistan’s headline inflation rate in June 2024 was recorded at 12.6% year-on-year. This was a slight increase from May’s inflation rate of 11.8%. Despite the marginal rise, the overall trend shows a stabilization in inflation, which supports the case for a further easing of monetary policy by the SBP.
On the global front, Asian shares experienced a rebound on Monday, entering a week filled with earnings reports and several central bank meetings. Investors are keenly watching the United States, the United Kingdom, and Japan, as their monetary policy decisions could signal changes in borrowing costs and economic strategies. The US and UK might consider easing their policies, while Japan could move towards normalizing its interest rates, reflecting a broader shift in the global economic landscape.
The anticipation of these central bank meetings adds a layer of complexity to global markets, influencing investor sentiment and market dynamics. For Pakistan, the MPC meeting’s outcome will be crucial in setting the tone for the domestic market and economic policy.
As Pakistan navigates its economic challenges, the government’s efforts to secure international financial support and implement fiscal reforms remain critical. The successful execution of the IMF program and the realization of associated financing assurances will play a pivotal role in stabilizing the economy and fostering sustainable growth.
