PSX reacts to surprise rate hike, plunges over 800 points

The Pakistan Stock Exchange's benchmark KSE-100 index plunged over 800 points, with the slump being attributed to the central bank's surprise move to hike the policy rate by 100 basis points on Friday evening.

The index saw a sharp slump right after the opening bell, dropping more than 600 points to 42,282.48 in the first 30 minutes of trading. It eventually closed at 42,071.34, down 865.39 points or 2.02pc.

Head of Research at Intermarket Securities, Raza Jafri, said the market had opened sharply negative as it factored in higher interest rates and continued uncertainty on the political front after Imran Khan's threat to dissolve the Punjab and Khyber Pakhtunkhwa assemblies.

"Support may come in later on, as positives such as Pakistan's intent to repay its maturing Sukuk ahead of schedule and the end to the long march, which risked street confrontation," he added.

First National Equities Limited Director Amir Shehzad also said the market was under pressure due to the "unexpected" increase in the policy rate by 100 basis points. He suggested that investors should adopt the strategy of buying the dip - a term used for the purchase of an asset after it has dropped in price - as oil prices were decreasing in the international market.

Moreover, he estimated that the increase in the policy rate was due to the International Monetary Fund's (IMF) "pressure" and that the "release of the next installment by the IMF would now be easier".

"Inflows are also expected and things seem to be settling politically too," he said, adding that in such a scenario, buy-on-dip strategy would be suitable. The SBP raised its key policy rate by 100 basis points to a 24-year high of 16pc last week in a decision that went against market expectations but, according to the central bank, was "aimed at ensuring that elevated inflation does not become entrenched".

The decision reflected the SBP monetary policy committee's (MPC) view that "inflationary pressures have proven to be stronger and more persistent than expected", the central bank said in a statement after a committee meeting.

The Federal Investigation Agency (FIA) arrested PTI Senator Azam Swati - the second time in less than two months - over strongly worded tweets against senior military officials. He was previously arrested by the FIA in October for a controversial tweet thought to be against the armed forces.

Since he was released on bail, the senator has maintained that he was allegedly tortured in custody and has demanded the removal of two military officials, one of whom he used foul language against in his tweet yesterday.