PSX rebounds over 1,800 points as Oct inflation data fires up rate cut bets

• State bank reserves rise by $116 million.
• Annual inflation rate punched in at 7.2% in Oct 2024.
• Finance market anticipates SBP to reduce policy rate by 200bps.

Stocks rebounded on Friday, fired up by October's tame inflation data, which bolstered expectations that the central bank would continue its rate-cutting cycle in its upcoming meeting on November 4, potentially reducing borrowing costs and stimulating economic activity.

Pakistan Stock Exchange's (PSX) benchmark KSE-100 Shares Index gained a massive 1893.09 points to end at 90,859.85 points after hitting a day high of 91,133.28 points in a late rally, against the Thursday's close of 88,966.76 points.

Ahsan Mehanti from Arif Habib Corp said stocks showed a sharp recovery amid upbeat data on CPI inflation at 7.2% year-on-year in October and the International Monetary Fund's (IMF) revised inflation projection of 9.5% for FY2025.

"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,” Mehanti added.

The country’s foreign exchange reserves with the central bank rose by $116 million to $11.156 billion in the week ending October 25.  The reserves increased by $32 million to $16.049 billion. However, the reserves of commercial banks decreased by $83 million to $4.893 billion.

The reserves improved after Pakistan’s current account posted a surplus of $119 million in September. This marks the second consecutive monthly surplus following a surplus of $29 million in August and a deficit of $218 million in September 2023.

The foreign exchange reserves were also boosted by the first tranche of $1.03 billion from the IMF — under the $7 billion Extended Fund Facility (EFF) programme.

Pakistan’s annual inflation rate punched in at 7.2% in October 2024, up from 6.9% in September but markedly lower than the 26.8% recorded in October 2023, data from the Pakistan Bureau of Statistics (PBS) showed on Friday.

The reading reinforced months of easing inflation — which hit a historic high of 38% last year and was at 26.8% in October 2023 — ahead of a meeting of the country's central bank next week to review the policy rate, which stands at 17.5%.

The consumer price index (CPI) inflation data beat the market as well as government forecasts of 6.8%, bringing the average inflation for the first four months of FY2025 to 8.7%, down from 28.5% in the same period of FY2024.

The financial market anticipates that the State Bank of Pakistan will reduce its policy rate by up to 200 basis points in its upcoming meeting on November 4.

If implemented, this would mark the fourth consecutive rate cut since June, driven by declining inflation, a narrowing current account deficit, and increased workers' remittances.