PSX Surges Over 2,200 Points on Positive Inflation Data

On November 1, 2024, the Pakistan Stock Exchange (PSX) experienced a remarkable rebound, surging over 2,200 points, primarily driven by the release of October's inflation data. This data has sparked optimism among investors, as it suggests that the central bank may continue its cycle of rate cuts in the upcoming meeting scheduled for November 4. Lower borrowing costs could potentially stimulate economic activity, which is a welcome sign for many.

The benchmark KSE-100 Shares Index of the PSX gained an impressive 1,893.09 points, closing at 90,859.85 points. During the trading session, it even reached a high of 91,133.28 points, a significant increase from the previous day's close of 88,966.76 points. This sharp recovery in stock prices can be attributed to the Consumer Price Index (CPI) inflation rate, which stood at 7.2% year-on-year in October. This figure is not only lower than the 6.9% recorded in September but also a substantial drop from the staggering 26.8% seen in October 2023.

Analysts have noted that the International Monetary Fund (IMF) has revised its inflation projection for Pakistan to 9.5% for the fiscal year 2025. Ahsan Mehanti from Arif Habib Corp remarked, "Speculation over an imminent policy rate cut next week and a surge in central bank-held reserves to $11.2 billion triggered the record bullish activity at the PSX." This sentiment reflects a growing confidence in the market, as investors anticipate favorable monetary policy changes.

In addition to the positive inflation data, the country’s foreign exchange reserves with the central bank rose by $116 million, reaching $11.156 billion as of October 25. Overall, the reserves increased by $32 million to a total of $16.049 billion. However, it is worth noting that the reserves held by commercial banks decreased by $83 million to $4.893 billion. The improvement in reserves follows a current account surplus of $119 million in September, marking the second consecutive monthly surplus after a $29 million surplus in August.

The recent data indicates a significant shift in Pakistan's economic landscape. The annual inflation rate of 7.2% in October reinforces a trend of easing inflation, which had previously reached a historic high of 38% last year. The consumer price index data not only exceeded market expectations but also brought the average inflation for the first four months of FY2025 down to 8.7%, a stark contrast to the 28.5% recorded during the same period in FY2024.

Looking ahead, the financial market is bracing for a potential reduction in the State Bank of Pakistan's policy rate by up to 200 basis points in the upcoming meeting. If this occurs, it would mark the fourth consecutive rate cut since June, driven by declining inflation, a narrowing current account deficit, and increased workers' remittances. This anticipated move could further enhance economic growth and provide much-needed relief to borrowers.

The recent developments in the PSX and the broader economic indicators suggest a cautiously optimistic outlook for Pakistan's economy. As inflation eases and reserves improve, the potential for lower interest rates could pave the way for increased investment and consumer spending. For investors and everyday citizens alike, these changes could signify a turning point, fostering a more stable and prosperous economic environment in the months to come.