PSX takes a hammering after SBP’s sudden interest rate hike to highest since 1999

The Pakistan Stock Exchange (PSX) took a hammering at opening bell Monday morning in reaction to the State Bank of Pakistan’s (SBP) unforeseen hike Friday, while the market was closed, in the interest rate to 16% — the highest level since 1999.

The benchmark KSE-100 index lost 707 points or 1.65% as soon as the trading week kicked off. The market was at 42,229 points at 9:39am. It had closed at 42,936.73 points at the last session on Friday.

The market saw a brief recovery but it remained in the negative territory, with the bears continuing to dominate and taking the market down by 969 points at 2:19pm.

Read more: SBP hikes policy rate by 100bps to 16pc

Analyst Samiullah Tariq blamed SBP’s decision to increase the interest rate as a key factor for the drop in the KSE-100 index.

“The market wasn’t expecting a rate hike. That’s why it is reacting,” the head of research at the Pakistan-Kuwait Investment Company told media.

At the time the decision was announced the markets had closed, which is why the KSE-100 index went in the red at opening bell today.

Capital market expert Saad Ali also blamed the “surprise interest rate hike” for the drop, adding that investors may be expecting more hikes given the inflation outlook.

“Interest rates at 16% or higher is significantly negative for growth and corporate profitability,” Ali told media.

SBP hikes interest rate to 16% to curtail inflation

On Friday, the Monetary Policy Committee (MPC) of the SBP raised the key policy rate by 100 basis points to 16% — the highest since 1999.

The central bank, in a statement, issued after the meeting said that the decision reflects the MPC’s view that inflationary pressures have proven to be stronger and more persistent than expected.

“This decision 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 said.

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