PSX Surges Amid Rate Cut Speculation and Circular Debt Reforms

The Pakistan Stock Exchange (PSX) continued its bullish trend on Friday, driven by expectations of a policy rate cut and progress in circular debt restructuring. Investors showed confidence as the market rallied ahead of the State Bank of Pakistan’s (SBP) monetary policy announcement on March 10.

Market Gains on Positive Sentiment

The KSE-100 Index surged 685 points to close at 114,398.69, marking a 0.6% increase. During intraday trading, the index hit a high of 114,721.58, up by 1,008 points, while the lowest level recorded was 114,169.19.

Buying activity remained strong, particularly in cement and energy stocks, as investors anticipated monetary easing. A decline in the Sensitive Price Index (SPI) further reinforced expectations that March’s inflation figures would be lower, boosting market confidence.

Key Drivers Behind the Rally

According to analysts, several factors contributed to the market’s strong performance:

• Circular Debt Resolution: News of progress in restructuring Pakistan’s circular debt led to a rise in Pakistan State Oil (PSO) and related stocks.
• Rate Cut Expectations: The cement sector performed well, anticipating a policy rate cut on March 10.
• Liquidity and Positive Momentum: The strong market recovery from the previous day continued, supported by ample liquidity.
• Falling Inflation: The declining SPI suggested that inflation would remain low, strengthening hopes for monetary easing.

Government’s Plan to Address Circular Debt

Pakistan’s government plans to borrow Rs1.25 trillion from commercial banks to restructure old loans and reduce circular debt. Bank executives met with government officials in Islamabad to discuss the borrowing strategy, which has also been shared with the International Monetary Fund (IMF).

While an agreement is expected soon, some banks raised concerns about the offered rate of KIBOR minus 1%. Discussions are ongoing, and final terms will likely be announced in the coming days.

Read: IMF Pushes Pakistan to Cut Circular Debt in Ongoing Talks

Inflation at Lowest Level in Nearly a Decade

Pakistan’s inflation rate dropped sharply to 1.5% year-on-year (YoY) in February, marking the lowest level since September 2015. Month-on-month, inflation declined 0.9% in February, compared to a 0.2% increase in January.

For the first eight months of the fiscal year (July-February), average inflation stood at 5.85%, significantly lower than 27.96% in the same period last year. This decline has strengthened expectations that SBP will ease monetary policy further in its upcoming announcement.

Foreign Reserves and Economic Stability

Pakistan’s foreign exchange reserves held by the SBP increased by $27 million to $11.25 billion in the week ending February 28. However, total liquid reserves declined by $52 million to $15.874 billion, as commercial banks’ reserves fell by $79 million to $4.624 billion.

Despite a slight increase in SBP reserves, external debt repayments and the widening current account deficit remain major risks to economic stability.

PSX’s Strong Performance Continues

On Thursday, the KSE-100 Index had already surged by 1,459 points, closing at 113,713.18 points. With positive momentum, falling inflation, and expected economic reforms, the stock market outlook remains optimistic as investors await the monetary policy decision next week.

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