Federal Budget

Pakistan stocks tumble, rupee stays strong amid high interest rates and political uncertainty

Pakistan stocks tumble, rupee stays strong amid high interest rates and political uncertainty

Business

One would have to see how the share and currency markets will act in the days leading to Feb 8

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KARACHI (Web Desk) – The share market had another session of losses on Tuesday with the benchmark KSE-100 Index shedding 931.98 points, or 1.48 per cent, as the central bank’s Monetary Policy Committee decided to maintain the interest rates with the country witnessing increase in inflation in total contrast to the hopes expressed by both by Islamabad and the top financial institutions.

However, another factor adding to the selling pressure was the conviction of PTI founder in the cipher case, thus further aggravating the political uncertainty, which means the former prime minister would spend 10 years in prison after being awarded rigorous imprisonment by a special court established under the Official Secrets Act in the cipher case.

The latest losses came after the KSE-100 Index tumbled 1.63 per cent in the previous session by closing at 62,773.72.

On the other hand, the US dollar was down nine paisa in official exchange rate after making a 25 paisa gain during early trading against the previous closing of Rs279.64. It means the dollar ended the day at Rs279.55.

THE COSTLY BORROWING

With the Monetary Policy Committee deciding against any rate cuts, a strengthening dollar shouldn’t be surprising as the high interest rates globally have made the save-haven currency even more attractive for investors – a trend particularly damaging for the poor and developing countries.

However, some people were expecting a rate cut amid a surging inflation, although everyone praying for reduced borrowing costs as the record-high interest rates have crippled the economy.

Last year, Pakistan had witnessed the worst-possible situation when the rupee slumped to Rs307.10 against the dollar Sept 5. However, the trend was reversed as the government took a strict action market manipulators and cross-border smuggling of the world’s top currency.

Rupee devaluation triggered the economic crisis in Pakistan, as the move made the imports even more expensive for the country, a scenario witnessed by many countries across the world – from the poor nations of Africa to Egypt, Argentina and Turkiye [previously known as Turkey].

As the key policy rate will remain at 22 at least for the next two months amid a rising inflation, one would have to see how the stock and currency market will behave during the days leading to Feb 8 elections, which are now less than 10 days away amid the related political uncertainty.

However, a thumping mandate with at least a simple majority will certainly help the boosting the market sentiments both in the case of rupee and stocks, as it is going to ensure a solid and long-term economic policies – a scenario not possible for coalition governments comprising parties with competing interests.

When it comes to the slashing the key policy [interest] rate, only three-times prime minister Nawaz Sharif’s PML-N has made a clear promise in its manifesto. Unfortunately, other parties are more or less silent on the issue.