Leverage seen in capital market for predicted cut in SBP policy rate

March 17, 2020: The capital market players on Tuesday predicted that Pakistan Stock Exchange will close at positive note due to the expected cut in the policy rate by State Bank of Pakistan in its monetary policy statement to be announced here Tuesday.  

Mix trend was seen at the exchange on the second day of the week. 

The trading of the stock went up and down. However, market experts foresaw recovery of the exchange as an international capital market was in the bullish state after a steep slide over the last couple of weeks.       

On Monday, PSX suffered the worst single-day dive in its history. KSE-100 index plunged by 2375 points or 6.59 percent loss at 33685 points against its recent height of 43,200 points on January 13, 2020. On May 20, 2002, the index had witnessed a 7.45 percent crash.      

After the fall of the KSE-100 index by more than 4 percent, trading on Monday was called to a halt and it was the fourth halt in two weeks.  

Talking a group of media persons at PSX, its Chairman, Abdul Karim Dhedhi called for 3.25 percent cut in SBP’s discount rate as in many countries the Central Banks had significantly reduced the discount rates to support the economies hit by an epidemic of coronavirus.  

“ It will be difficult for our economy to survive if SBP does not reduce policy rate today,” he remarked adding that like in other economies of scale, the Pakistan government should announce a stimulus package to strengthen the economy.

He said Pakistan’s exports had a bad effect due to lock-down declared by many countries after the outbreak of COVID-19.  

The leading businessman suggested that Pakistan should benefit from a drop in oil prices in international markets by hedging big oil stocks.  

PSX’s former director Amin Yousuf said capital market players expected a 200 basis point cut in the discount rate by State Bank in the prevailing adverse situation. Besides, the government should announce a stimulus package on the pattern of many other countries. It should give tax relief to the corporate sector for the long-term benefit of the country.  

“Our government would have to take a big decision,” he emphasized. 

However, he appreciated the steps taken by Sindh and Federal governments to contain the spread of coronavirus.
Another capital market expert S.M. Mehnati also called for at least a 2 percent cut in the policy rate.

       APP/ah