The Capital Market opened the week on a negative trajectory, which experienced pressure selling between the thin trading volumes with the KSE -100 index.
Investors were cautious before the upcoming International Monetary Fund (IMF) review, while the seasonal Ramadan effect contributed to low participation in the market.
The Pakistan Stock Exchange (PSX) benchmark KSE -100 index climbed at 340.17 points (0.3%) to reach the Intrade high of 113,591.83, but later retreated, hitting the decline of 1,081.16 points (-0.95%), hitting the bottom of 112,170.50.
The early hours of market movement reflected investor hesitation, as fiscal goals, monetary policy and a sense of uncertainty on upcoming IMF talks, weighed the spirit.
Commenting on the session, Sana Tawffi, head of research in Arif Habib Limited, said: “This (downward) is mainly due to selling pressure. Due to the Ramadan factor, it is also seen in small amounts.”
The State Bank of Pakistan (SBP) is expected to take a measured stand on further monetary ease, despite the decline in inflation despite supporting the case for rate cuts.
The Monetary Policy Committee (MPC) is to meet a few days after the IMF delegation on March 3 to review Pakistan’s $ 7 billion bailout package on March 3.
Since June 2024, the Central Bank has already reduced rates from the 1,000 basis points (BPS), causing the benchmark policy to 12%. However, analysts suggest that while another rate cut is possible, it may be limited to Pakistan’s fiscal challenges and ongoing IMF discussions, 50bps.
In a report, Arif Habib Limited (AHL) highlighted the rapid decline in inflation, which fell to 2.4% in January – the lowest level in 111 months. The inflation of February is expected to increase further, which strengthens the matter of further ease.
The AHL report stated, “Given inflation and sharp decline in stable reserves, the upcoming policy meeting seems to be a logical step in the upcoming policy meeting.
As Prime Minister Shahbaz Sharif’s government prepares for IMF review, concerns have intensified due to lack of Rs.604 billion on a large scale. The Federal Board of Revenue (FBR) needs to collect Rs 1,825 billion in March to meet the IMF target by 31 March.
However, the Ramadan season, public holiday, and low working days are expected to obstruct tax collection to Eid ul Fitr, making it difficult to achieve the target.
With a total collection for the first eight months of the financial year, the FBR is already behind its target of 7,947 billion. The end of the financial year in June 2025 is likely to cross the Rs.1 trillion by the end of the financial year, increasing concerns over Pakistan’s ability to complete the IMF conditions.
There are two options for Pakistani negotiators as they are ready to discuss with the IMF. The first formally is to request the IMF to modify the Federal Board of Revenue (FBR) tax collection target downwards, acknowledging the challenges caused by a significant revenue deficiency.
The second option is to use the available fiscal location made by low debt servicing costs. By recovering these savings, the government can maintain its fiscal deficit within the boundaries approved by the IMF, which can ensure compliance with comprehensive financial stability targets, reducing the pressure on revenue collection.
On Friday, the KSE -100 index closed at 113,251.66 points, below 532.65 points (-0.47%) from the previous close of 113,862.33 points.
