Everyone has their eyes on the upcoming State Bank of Pakistan’s monetary policy meeting due on September 16th, 2019. There are mixed expectations. Except one leading research house, most of the analysts and research houses expect the SBP to maintain status quo.
However one research house predicts the reduction of 25 basis points in the key interest rate to 13%. Now if a reduction is reported it certainly would have a positive affect on the Pakistan’s stock market. We can compare where the index stood when SBP last announced its interest rate decision.
On July 16th, 2019 SPB in its monetary policy meeting announced the increase of 100 basis points in policy rate to 13.25% in reaction of the more than expected inflation figure of 11-12 percent. The KSE 100 index stood at 32,972 points on July 16th, 2019. The policy rate was to be implemented on July 17th, 2019 and the benchmark index maintained its levels at 32,981.99 on the respective date. The index took a plunge on the very next day to 32,309.54. By the end of July, 2019 index reached the level of 31,658.
This is to be noted that the increase of 100 bps in interest rate contributed to the bearish rally of Pakistan’s Stock Exchange. Now the argument would be justified here that even if the Monetary Policy Committee reduces the key rate by 25 bps as expected by one research analyst, the market already has digested the affects of it in its prior bullish sessions.
There are other positive economic indicators too such trade deficit has dropped by 38 percent in July-August from USD 6.37 billion to USD 3.973 billion. Governor State Bank of Pakistan also expressed his strong opinion on gradual improvement in economy. Financial results of DG Khan Cement Company Limited are also due on September 16th, 2019 and same research house which expects the reduction in key interest rate also expects the earnings of DGKC to decline by 75 percent.