KARACHI (Web Desk) – The KSE-100 Index tumbled around 1.50 per cent after setting a new high during early trading, as the high interest rates with no rate cuts in sight made investor resort to profit taking amid the Monetary Policy Committee (MPC) meeting being held on Monday.
The session started with the benchmark index setting a new high by crossing the 73,000 barrier and touching 73,300.75 against the previous closing of 72,742.74.
But the rout started soon afterwards, which peaked in the afternoon session, as the KSE-100 Index at one point slid to 71,602.94, thus down 1.55pc.
By the time trading was closed, it settled at 71,695.03, representing a net loss of 1.44pc or 1,047.71 points.
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The latest losses came as investors, who resorted to profit taking after the previous week’s rally, eagerly awaited the MPC outcome and reasons cited by the central bank for the expected decision of not going for rate cuts while looking for a clue about future course of action. The next MPC meeting is scheduled for June 10.
Pakistan has been witnessing historic-high interest rates amid a persistent inflation crippling the economy and more energy tariff hikes on the cards, which will obviously fuel the existing inflationary pressure.
However, the diminishing hopes of rate cuts by the State Bank of Pakistan despite a declining inflation during the January-March period showed by the consumer price index (CPI) – a monthly gauge of prices – and a similar reading for April meant that the market couldn’t sustain the initial trend witnessed on Monday.
WHY RATE CUTS REMAIN A KEY DEMAND
It must be noted that the rate cuts will only give a much-needed boost of business activity but also prop up the rupee as lower interest rates make the dollar – the top safe-haven currency – less attractive, as the green back flourishes when the borrowing costs are high.
Read more: Dollar rally supercharged by US rate outlook, could complicate inflation fight for other economies
Hence, the rate cuts will also help reducing inflation which is mainly a product of expensive imports – a natural outcome of rupee devaluation.
That’s why interest rate cuts is the main demand made by business community against the IMF dictate which calls for monetary tightening along with liberalisation of currency market.