The Pakistan Stock Exchange (PSX) kicked off the week on a positive note as investor optimism surged, driven by expectations of a potential policy rate cut by the State Bank of Pakistan (SBP) and improving economic indicators.

During early trading, the benchmark KSE-100 Index soared by 1,525.14 points, or 1.33%, reaching an intraday high of 115,826.94. This uptick follows a record-breaking performance last week.

Market enthusiasm is bolstered by the upcoming announcement from the Monetary Policy Committee (MPC), with speculations of a rate cut ranging between 200 to 500 basis points. Business leaders are advocating for a substantial cut to stimulate economic growth, while analysts anticipate a more cautious adjustment.

Recent data shows that November’s inflation rate dropped to 4.9%, resulting in a positive real interest rate of 10%, which creates ample room for easing monetary policy.

The government’s recent revision of the National Savings Schemes (NSS) profit rates, which saw a 250 basis point reduction in Savings Account returns, is expected to shift funds from savings into equities, further energizing market activity.

Strong foreign inflows have contributed to this bullish sentiment, with remittances rising 29% year-on-year to $2.9 billion in November, helping maintain foreign reserves at $16.6 billion as of December 6, 2024.

Reserves held by the SBP reached $12.051 billion, the highest since March 2022.

Additionally, the Current Account Deficit (CAD) has narrowed significantly, down 79% year-on-year to $217 million during the first two months of FY2025, aided by robust remittance flows and stable export earnings.

Exports are projected to hit $33 billion by the end of FY2025, while remittances are expected to rise to $33.5 billion, supported by government incentives and easing global inflation.

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The banking sector is also showing signs of recovery, with the advance-to-deposit ratio (ADR) increasing to 47.8% in November.

Last week’s Treasury Bill (T-bill) auction raised Rs1.256 trillion, surpassing its target, which has further bolstered liquidity in the market.

As the SBP prepares to announce its policy rate later today, analysts believe that a significant rate cut, combined with strong macroeconomic stability, could sustain the PSX’s positive momentum in the coming weeks.