One in two stock market pundits scored the point as the State Bank of Pakistan announced status quo on the discount rate in the Monetary Policy announced on Saturday.

“The market was evenly divided on prospects of a stalemate or a cut in discount rate,” most brokers said on Saturday.

Raza Jafri, head of research at AKD Securities, affirmed that the SBP had taken a wise decision.

“Yes, half the market was betting on a cut by 50bps, yet the Central Bank could scarcely have taken a decision of softening the policy on the basis of a positive development in just over a week,” said Raza, referring to the surprise big gains of the rupee against the dollar.

He acknowledged that foreign exchange reserves had surged to $9.5bn as a result of inflows, which represented strength of the economy, yet, he said, the reserves were enough to cover just one and half months’ imports.

“The State Bank had to be cautious in its decision lest the positive tilt of the economic indicators, swing the other way,” Raza said.

He thought that the stock market would take the decision in stride without much upheaval.

Khurram Schehzad, chief investment officer at Lakson Investments Limited, also discounted the possibility of an intense volatility in the stock market next week, pointing out that ‘no change’ was largely factored in stock prices.

He said that the market had remained choppy the previous week, which did not indicate much excitement over a change.

“There may be some switching of stocks in investor portfolio, but overall, an extreme volatility was unlikely,” he said. Investors who were looking at the prospect of a discount rate cut preferred to accumulate leveraged stocks, such as in the cement, IPPs, textiles and others, for they would have benefitted on account of decrease in interest rate payments on loans. But the commercial banks had last week remained under some pressure as they would have suffered a further squeeze in spreads in the event of a rate cut.

“The banks could breathe easy next week,” Khurram thought.

All in all, there was no element of surprise in the SBP policy for the stock market. Most stock gurus argued that they would go with the SBP in keeping the rate unchanged for another two months until the dust settled on the economic front. In its MPS statement, the SBP had talked about lower inflation; growth in Large Scale Manufacturing; the curb on fiscal deficit; growth in private sector credit; improved reserves and the stronger rupee. Yet the bank had cautioned about weakness in structural reforms, which needed to be addressed in the balance of payment position.

“It is suggestive of a wait-and-watch approach of the SBP, which speaks of a responsible attitude,” says Raza at AKD. He said and other analysts concurred that if important economic indicators continue to move in the positive direction, it would do no harm if the SBP was to wait another two months and then resort to a discount rate cut by as much as 100bps in the next MPS.”

In a largely uncertain environment, a step taken in haste could have spoilt the forward plans of industry and commerce, particularly the exporters, said one broker, adding that decrease of rate now only to restore it two months later, also had the potential of putting to risk the credibility of the Central Bank itself.