The Pakistani capital market saw a significant surge on Friday, driven by growing expectations of an upcoming policy rate cut, positive progress on circular debt restructuring, and sustained optimism among investors.
Investor confidence spurred aggressive buying across key sectors, with cement and energy stocks leading the charge ahead of the anticipated State Bank of Pakistan (SBP) monetary policy announcement on March 10. The market’s upward momentum was further fueled by a decline in the Sensitive Price Index (SPI), signaling expectations of lower inflation for March and reinforcing the case for monetary easing.
The Pakistan Stock Exchange’s (PSX) benchmark KSE-100 Index gained 685.52 points, or 0.6%, closing at 114,398.69. The index touched an intraday high of 114,721.58 and a low of 114,169.19 during the day.
Sana Tawfik, Head of Research at Arif Habib Limited, explained, “The market is driven by news of circular debt resolution, particularly in stocks like PSO and related companies. The cement sector is performing well, likely in anticipation of a policy rate cut on March 10. The positive momentum from yesterday, supported by strong liquidity, has also helped.” She added, “The decline in the SPI further supports expectations of lower inflation for March, providing another boost for market sentiment.”
In related news, the government plans to borrow Rs1.25 trillion from commercial banks to restructure old loans and address the circular debt issue. Discussions are ongoing, but an agreement is expected soon, with some concerns over the rate being offered, set at KIBOR minus 1%.
February inflation saw a sharp drop to 1.5% YoY, the lowest since September 2015. This decline, along with a strong recovery in the stock market, has intensified expectations of further monetary easing from the SBP.
On the external front, the central bank’s foreign exchange reserves increased by $27 million to $11.25 billion, while total liquid reserves fell by $52 million to $15.874 billion, primarily due to a drop in commercial bank reserves. Despite this, concerns over external debt repayments and a widening current account deficit remain key risks to the country’s financial stability.
