Monetary policy expected to bring change in policy rate too
The Pakistan Stock Exchange or PSX did not like the news that our trade deficit had ballooned to a record number and let its sentiment known by offloading 2,134.99 points Thursday. It cost investors a whopping Rs332 billion.
The KSE-100 index opened the trading session at 45,369 points, by noon the index lost 1,936 points or 4.27 % down. The trade was suspended with the investors wiping off 2,135 points (4.7%) and the market closed at 43,234.
It was PSX’s largest single-day decline in 2021 and the third largest in history.
The fall cost investor a whopping Rs332 billion ($1.9 billion) an unusually large sum for a country that held prolonged negotiations with the IMF for a loan tranche of $1 billion, says SAMAA Digital‘s Wakil ur Rehman.
The market capitalization has been reduced to Rs7,418 billion.
The share price of 338 companies — out of the 365 that traded on the market on Thursday — fell while share price of only 16 companies increased. Several shares were in the lower lock after falling 7.5%.
The market tumble also put an end to the Pakistani rupee’s two-day winning streak and it lost 94 paisas against the US dollar. The greenback jumped to an all-time high of Rs176.42 in the interbank market.
The trade deficit was one obvious reason but other factors also contributed to the market fall.
Analyst Raza Jafri agreed that the panic was caused in part by the news of a record trade deficit in November. Provisional numbers were revealed on Wednesday that imports went up to around $8 billion in November which is almost double than the imports in the same month last year.
The skyrocketing trade deficit has shaken investor confidence and they are trading with caution, Jafri explained.
The possible increase in the interest rate, indicated by the T-Bills, also forced investors to take flight.
The State Bank of Pakistan (SBP) auctioned Treasury Bills on Wednesday. The three-month T-bills offered interest at the rate of 10.39% and the six-month T-bills were sold at an interest rate of 11.05%. The interest rate is higher than the policy rate of 8.75%.
The T-bill auction indicated that government planned to increase the interest rate by 100 basis points to 150 basis points. This knowledge triggered the investor flight.
The government is expected to announce the next monetary policy on December 14. Last month the country recorded 11.5% inflation, which is a 20-month high. In October, this was at 9.2%.
Analysts say it is expected that the government might increase the policy interest rate by 1% or 100 basis points in an attempt to control inflation.
Right now, the monetary policy rate is 8.75% after the State Bank increased it by 150 basis points on November 19.
The prospects of an increase in the policy rate has made investors even more cautious, Jafri believed.
Experts believe that the government could control and reverse market losses by immediately reducing imports because it was unlikely to succeed in increasing exports.
The $3b Saudi loan and $1bn IMF loan installment could also help, they say.