Pakistan Stock Exchange (PSX) plunged over 800 points on first business day on Monday after the State Bank of Pakistan (SBP) hiked policy rate by 100 bps to 16 per cent.

Benchmark KSE-100 index witnessed a sharp drop, falling more than 600 points to 42,282.48 in the first 30 minutes of trading.

By the end of the session, the index closed with a loss of 865.39 points or 2.02% at 42,071.34.

The bears prevailed as investors reacted to a development that took markets by surprise and opted for selling their shares after the interest rate hike announced by the central bank created a negative impact on the business environment.

On Friday, the country’s central bank announced the new monetary policy raising the policy rate by 100 basis points or 1 percent to 16 percent.

“Amid the on-going economic slowdown, inflation is increasingly being driven by persistent global and domestic supply shocks that are raising costs. In turn, these shocks are spilling over into broader prices and wages, which could de-anchor inflation expectations and undermine medium-term growth. As a result, the rise in cost-push inflation cannot be overlooked and necessitates a monetary policy response,” the SBP said in a statement issued by its monetary policy committee (MPC).

It said that the decision reflected the monetary policy committee’s view that inflationary pressures have proved stronger and more persistent than expected.