An unexpected interest rate hike by the State Bank of Pakistan shook investor confidence on the first day of the week, as the stock market took a shocker on Monday morning with the benchmark KSE-100 index down over 700 points. .
The benchmark KSE-100 index of the Pakistan Stock Exchange (PSX) closed at 42,936.73 points last week.
However, once the market opened, the stock fell by 707 points or 1.65% and was at 42,229 points at 9:39 am.
Analyst Samiullah Tariq blamed the State Bank’s decision to hike interest rates as a major factor in the decline in the KSE-100 index.
“[The] market was not expecting a rate hike. That’s why it’s reacting,” head of research at the Pakistan-Kuwait Investment Company told JEE News.
Capital market expert Saad Ali also attributed the drop to a “surprise interest rate hike”, adding that investors were expecting further hikes given the inflation outlook.
“An interest rate of 16% or more is significantly negative for growth and corporate profitability,” Ali told JEE News.
Markets were closed when the State Bank announced the decision, which is why the KSE-100 index went into the red at the opening today.
State Bank hiked interest rate to 16% to curb inflation.
On Friday, the Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) hiked the key policy rate by 100 basis points to 16%, the highest since 1999.
The central bank said in a statement after the meeting that the decision reflected the MPC’s view that inflationary pressures have proved stronger and more persistent than expected.
“The objective of this decision is to ensure that inflation does not rise and risks to financial stability remain, thereby paving the way for higher growth on a more sustainable basis,” the MPC said.
The State Bank noted that amid the ongoing economic slowdown, inflation continues to rise with global and domestic supply shocks pushing up costs.
