Pakistan Stock Exchange recorded a sharp slump of over 1,000 points during the intraday trading on Wednesday. Multiple reasons have been cited for the drop; however, the recent increase of the benchmark interest rate by the Monetary Policy Committee is considered to be the main culprit.

The KSE-100 index reported trading at 44,909.1 points after a fall of 1,099.75 points of 2.39%. Pakistan Tobacco saw the biggest decline in shares that fell by Rs 41 to Rs 1,155 per share, followed by Gatron Industries, which fell by Rs 32.99 to Rs 480.01 per share.

Earlier on Monday, the State Bank of Pakistan announced an increase of 25bps in the policy rate. The State Bank indicated that the policy to raise the interest rate might continue to be followed in the upcoming months as the economy recovers from COVID-19 and is set to face rising current account deficit and inflation rates.

The announcement has hurt investor sentiments leading to selloffs at the stock exchange in anticipation of stricter monetary policy conditions in the future.

Another reason for the dip at the Stock Exchange is the continuation of the global selloff. The reason behind this continued selloff is the anticipation probable default of China’s top property developer Evergrande, which is expected to have a spill over effect in financial markets worldwide.

Pak-Kuwait Investment Company’s Head of Research Samiullah Tariq contributed the sharp dip in the KSE-100 index to the shift in the monetary policy of increasing the interest rate to 7.25%. He commented, “The State Bank of Pakistan has taken a step towards monetary tightening and investor sentiments took a hit because they expect it to deepen further.”

Mirroring similar sentiments, AA Gold Commodities’ Director Adnan Agar said that hike in benchmark interest rate shattered the spirits of market participants which could be gauged from the battering being experienced by the KSE-100 index. Expectations of further hike in interest rate going forward took a toll on market sentiment.”

“Besides, global stock markets are on a downtrend for past two to three due to risk of default by Chinese Evergrande group and uncertainty over US monetary policy decision due later during the day. Both these factors fueled sell off at the local bourse,” Agar said.

Arif Habib Corp’s Managing Director and CEO Ahsan Mehanti said, “Stocks closed bearish on ongoing global equity selloff and falling crude oil prices. Central bank’s hawkish monetary policy, concerns over foreign outflows, surging current account deficit, circular debt at Rs2.28 trillion, and falling rupee made the stocks bleed.”

An analyst at Topline Securities Haris Khan said, “Initially, the index saw an intra-day high of 46,833 but succumbed to selling pressure near the close of the day. Moreover, investors also took to the sidelines as they monitored a selloff in the international financial markets coupled with rising commodity prices.”

The story was filed by the News Desk.
The Desk can be reached at info@thecorrespondent.com.pk.

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