Pakistan’s benchmark share index rose 2.98 per cent to a record high level on Thursday, after a lower-than-expected inflation figure this week lifted hopes of a rate cut this month.

The South Asian economy has been on a fragile path to recovery, helped by a $7-billion bailout approved by the International Monetary Fund (IMF) in September.

The benchmark index hit a record high of 108,238.96 levels after gaining 3,134.63 points. It has surged 25% since July’s staff-level agreement with the lender.

The market is up more than 50% this year in dollar terms and is one of the top gainers across emerging markets.

“Risk-on behaviour by mutual funds which are reallocating to equities given the sharp drop in money market rates following the drastic policy rate cuts,” drove up the market, said Adnan Sheikh, assistant vice president of Pak Kuwait Investment Co.

Pakistan cut interest rates in November by a record 250 basis points to 15% to try to revive its economy after a big drop in inflation, which came in at 7.2% in October, down from a multi-decade high of nearly 40% in May 2023.

Pakistan’s annual consumer inflation rate slowed to 4.9% in November, in data issued on Monday, largely because of a high base a year earlier, coming in lower than the government’s forecast of 5.8% to 6.8%.

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Many analysts and investors expect the State Bank of Pakistan to continue with rate cuts when the central bank meets on December 16 to decide on the policy rate.

A poll by Karachi-based investment and securities firm Topline Securities showed that 71% of respondents expect the central bank to declare a minimum rate cut of 200 bps.

“A Santa Claus effect at the end of the year is also helping with investors making allocations for next year,” Sheikh added, referring to the approaching year-end holiday season.