PSX plunges 900 points as market reacts negatively to rate hike

KARACHI: Pakistan Stock Exchange’s benchmark KSE-100 index plunged nearly 900 points on Monday as selling pressure is being witnessed across the board after the 100bps policy rate hike announced by the State Bank of Pakistan (SBP) last week.

The benchmark KSE-100 index lost 865.3 points or over 2 percent, closing at 42,071.3 points.

Across-the-board selling pressure was witnessed as investors reacted to a development that took markets by surprise, after the Monetary Policy Committee (MPC) of the SBP on Friday raised the key interest rate by 100bps, taking it to 16%, the highest since 1998-1999.

A company’s bottom line suffers as a result of rising finance costs brought on by an increase in the key interest rate. With shares of the construction, automotive, and oil industries all trading in the red, the market was largely in the red.

The majority of market participants surveyed prior to the monetary policy announcement predicted that the central bank would keep interest rates at 15%.

“This decision reflects the MPC’s view that inflationary pressures have proven to be stronger and more persistent than expected. It is aimed at ensuring that elevated inflation does not become entrenched and that risks to financial stability are contained, thus paving the way for higher growth on a more sustainable basis,” the MPC had said in its statement on Friday.

The MPC was of the view that amid the ongoing economic slowdown, inflation is increasingly being driven by persistent global and domestic supply shocks that are raising costs.

“In turn, these shocks are spilling over into broader prices and wages, which could de-anchor inflation expectations and undermine medium-term growth.

“As a result, the rise in cost-push inflation cannot be overlooked and necessitates a monetary policy response,” it said.

Sectors painting the benchmark KSE-100 in red included cement (198.27 points), oil and gas exploration (114.77 points) and banking (110.06 points).

Volume on the all-share index rose to 244.4 million from 177.3 million on Friday. The value of shares traded rose to Rs7 billion from Rs6.1 billion recorded in the previous session.

K-Electric was the volume leader with 29 million shares, followed by WorldCall Telecom with 22.5 million shares and Dewan Motors with 13.8 million shares

Shares of 350 companies were traded on Monday, of which 47 registered an increase, 294 recorded a fall, and nine remained unchanged.