Pakistani stocks, currency recover after top court ruling eases political uncertainty

KARACHI: Pakistani capital markets and currency on Friday recouped some of the losses after a ruling by the country’s top court reduced days-long uncertainty that prevailed since Sunday, when Prime Minister Imran Khan moved to dissolve parliament, traders and analysts said.
The Supreme Court on Thursday ruled that Khan’s move to dissolve parliament was “unconstitutional” and ordered reinstatement of the National Assembly of Pakistan. The verdict is likely to result in ending Khan’s premiership of the South Asian country after a no-confidence vote on Saturday.
The constitutional crisis has threatened economic and social stability, with the Pakistani rupee hitting all-time lows against the dollar and the bourse witnessing bearish trends. On Thursday, the dollar closed at Rs188.13 in the interbank market and traded as high as Rs190.50 in the open market, prior to the apex court verdict.
However, the Pakistani currency on Friday witnessed a substantial improvement against the greenback by recovering Rs3.4 or 1.9 percent on a day-on-day (DoD) basis — the highest DoD recovery since April 17, 2020.
The greenback closed at Rs184.68 in the interbank market on Friday, according to the central bank data. It was trading at Rs188 in the open market.
“The combination of factors, the clarity on political front and the central bank’s move to increase the interest rate, have played a key role in the bullish close of the capital markets,” Samiullah Tariq, research director at Pakistan Kuwait Investment Company, told Arab News.
Pakistan’s central bank, which increased the key policy rate by 2.50 percent to 12.25 percent in an emergency move on Thursday, said the heightened domestic political uncertainty contributed to a 5-percent depreciation in the value of rupee and a sharp rise in domestic secondary market yields as well as Pakistan’s Eurobond yields.
The South Asian nation is also facing dwindling foreign exchange reserves, which decreased by $728 million to $11.32 billion due to debt repayment and government payments pertaining to settlement of an arbitration award relating to a mining project.
The stock market observed a bullish trend, with the benchmark KSE 100 index gaining 1.5 percent or 657.75 points to close at 44,445-point level.
“The session followed Supreme Court’s decision which put an end to political crisis to a large extent and rally in the banking sector on account of 250 bps hike in policy rate by the State Bank of Pakistan to 12.25 percent,” the Topline Securities brokerage firm said in its daily report.
Though the banking sector remained jubilant over the central bank’s decision to jack up the policy rate, business community expressed its resentment, saying the action was bound to negatively impact the economy.
“The point to be highlighted is that, the interest rates in corresponding countries such as India, Bangladesh, Sri Lanka and Bhutan are still in a range of 4 percent to 7.16 percent,” Ismail Suttar, president of Employers’ Federation of Pakistan (EFP), said in a statement issued on Friday.
“Yet a country such as Pakistan, that is experiencing socio-economic instability to a large extent has been driven to sudden rash decisions in the name of stability.”
Suttar said the State Bank of Pakistan (SBP) should keep in consideration that such actions, only by means of simple incomprehension, were bound to hit the economy hard.
“A simple deliberation on the matter, can lead us to realize the traditional system of increasing interest rates is resulting in the collapse of the economic structure in Pakistan and if no action is taken in due time, the country would be facing the recession upfront,” he warned.

Pakistani stocks, currency recover after top court ruling eases political uncertainty