Downside pressures shrouded the Pakistan Stock Exchange on Monday as the benchmark KSE-100 index dropped over 700 points in intra-day trading ahead of the monetary policy announcement by the State Bank of Pakistan (SBP).

A major chunk of the market expects the central bank to hike the interest rate by nearly 100 basis points, while a small segment forecasts a status quo in the policy rate.

At 2:56 PM, the KSE-100 was trading at 42,369.9 points, a decrease of 730.81 points or 1.7%.

Headline inflation has remained in the double digits since November 2021, mainly on the back of an uptick in food and energy prices. This phenomenon still continues - headline numbers hit an almost two-year high in April, clocking in at 13.4%, with pressure mainly emanating from higher food and commodity prices, a report from Arif Habib Limited on the forthcoming Monetary Policy Committee statement said.

A looming economic crisis and concerns over the revival of the International Monetary Fund (IMF) bailout also dented investor sentiments.

Earlier on Monday, Finance Minister Miftah Ismail said that his team would seek a ‘’break’’ from the international lender, as the government could not hike the prices of petroleum products.

Experts have termed the resumption of the IMF programme crucial, as the green signal from the international lender would pave for further funding from other creditors.

Ismail held the view that the Pakistani public could not bear a massive increase in POL rates. Talks between Pakistan and the global lender are underway.

Ismail Iqbal Securities Head of Research Fahad Rauf told Business Recorder that apart from monetary policy speculation, uncertainty over economic conditions and lack of news related to the stalled IMF bailout were also impacting the equity market.

The story was originally published in Business Recorder on May 23, 2022.