After opening the week in the red, stocks recovered on Tuesday, gaining more than 500 points.

According to the Pakistan Stock Exchange (PSX) website, the benchmark KSE-100 index closed at 43,366.78 points, up 540.12 points or 1.26 per cent.

The index reached an intraday high of 43,419.59 points around 10:40am.

First National Equities Limited Chief Executive Ali Malik said the decision by the State Bank’s Monetary Policy Committee (MPC) yesterday to keep the policy rate unchanged at 15pc for the next two months came as a “surprise” for the PSX and had increased investors’ confidence.

“It is expected that the market can start rallying from here. If political stability is maintained, the market can surpass the 45,000-points mark in the coming days,” he commented.

Malik added that the continuous increase in the volume of shares being traded at the PSX was an indicator that investors were making fresh entries.

Intermarket Securities Head of Research Raza Jafri noted that the MPC’s decision to maintain its interest rate was the first such pause since monetary tightening began in September last year.

“Politics remains noisy in the background, but greater comfort on economic outlook is bringing valuations into focus, which remain unquestionably cheap,” he added.

Monetary policy

A day earlier, the State Bank of Pakistan (SBP) stated that with recent inflation developments in line with expectations, domestic demand beginning to moderate and the external position showing some improvement, it was prudent to pause rate hikes at this stage.

“To cool the overheating economy and contain the current account deficit (CAD), the policy rate has been raised by a cumulative 800 basis points since last September, some temporary administrative steps have recently been taken to curtail imports, and strong fiscal consolidation is planned for FY23,” it said in a statement.

Since the last meeting, the SBP noted headline inflation rose further to 24.9pc in July, with core inflation also ticking up, it said.

The SBP said that the withdrawal of the subsidy package on energy will continue to manifest in inflation out-turns throughout the rest of the fiscal year — as well as momentum in the prices of essential food items and exchange rate weakness last month.

The central bank believes the expected inflow of $1.2 billion from the International Monetary Fund will work as a catalyst for financing from multilateral and bilateral lenders.

On balance, the SBP noted that some greater slowdown in global growth would not be as harmful to Pakistan as for most other emerging economies, given the relatively small share of exports and foreign private inflows in the economy.

As a result, both inflation and the CAD should fall as global commodity prices ease, while growth would not be as badly affected, said the SBP.