The central bank’s unexpected decision to raise the policy rate by 100 basis points on Friday evening is what caused the benchmark KSE-100 index of the Pakistan Stock Exchange to decline by almost 800 points on Monday.
After the opening bell, the index had a steep decline, falling more than 600 points to 42,282.48 in the first 30 minutes of trading.
Around 1:30 pm, it had dropped by 856.67 points, or 2%, to hit 42,080.06 points.
Raza Jafri, the head of research at Intermarket Securities, noted that the market had opened significantly negatively due to increased interest rates and ongoing political instability following Imran Khan’s threat to dissolve the Punjab and Khyber Pakhtunkhwa parliament.
“Support may come in later on, as positives such as Pakistan’s intent to repay its maturing Sukuk ahead of schedule and the end to the long march, which risked street confrontation,” he added.
Amir Shehzad, a director of First National Equities Limited, added that the market was under stress as a result of the “unexpected” 100 basis point hike in the policy rate.
As oil prices were falling on the global market, he advised investors to apply the approach of “buying the dip,” which refers to buying an asset after it has declined in value.
Additionally, he predicted that the “IMF’s (International Monetary Fund) pressure” was to blame for the “rise in the policy rate and that it would now be simpler” for the IMF to issue the next installment.
He stated that in such a situation, a buy-on-dip strategy would be appropriate. “Inflows are also expected, and things seem to be settling politically too,” he added.
In a move that defied market predictions, the SBP increased its benchmark policy rate on Friday to a 24-year high of 16 percent. According to the central bank, this move was “aimed at ensuring that elevated inflation does not become entrenched”.
The central bank said in a statement following a meeting of the committee that the decision was based on the MPC’s assessment that “inflationary pressures have proven to be stronger and more persistent than expected.”
With this change, the SBP interest rate increases for this year total of 625 basis points.
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