Pakistan stocks closed Friday 4.5 per cent lower amid pessimism in the wake of the central bank's interest rate hike and a cloud of political uncertainties and economic imbalances, analysts said, according to dpa. The key KSE-100 Index of the Karachi Stock Exchange lost 615 points to close at 13,011 points over Thursday's 13,627 points. Earlier in the day the market was down by 653 points or 5 per cent. Dealers said the recovery of around 40 points was purely technical while the overall sentiments remained negative. "We see a continued decline to around 12,500 levels before any upward trend," said Asif Qureshi at Invisor Securities. Arif Habib, the former KSE chairman, said the market was hungry for any good news on the economic and political fronts. The biggest losers were financial institutions with the country's three largest banks falling to their 5 per cent daily limits. The central State Bank of Pakistan (SBP) on Thursday spiked the country's benchmark interest rates by 150 basis points to 12 per cent, citing rampant government borrowing as the main reason, which has ignited inflation to a 30-year high in the seventh most populated country in the world. This is the second rate increase since January and dealers do not rule out further rises in the rates. Every time the central bank increases its benchmark rate, popularly known as three-day repo, it exerts pressure on the market by making the central bank's financial instruments, such as treasury bills, more attractive and secure than the stock market. "It takes away institutional investors from the market into government securities," said dealer Ateeq Ahmed at Capital One Equities. The rising overall inflation, currently hovering at around 11 per cent, is hurting the 146 billion dollar economy. Specifically, food inflation has doubled to 25.5 per cent from 12.2 per cent during the last 10 months, starting from July 2007. "The inflation has reached an unsustainable level. No country depends so much on its central bank to meet fiscal deficit," Shamshad Akhtar, governor of the central State Bank of Pakistan said at a press conference on Thursday. The government's borrowing doubled during the last 10 months of the fiscal year 2007-2008 (July-June) to 944 billion Pakistani rupees (around 15 billion US dollars) from 452 billion rupees (7.5 billion dollars). "This is dangerously at 9.44 per cent of the GDP (gross domestic product). This reckless borrowing stocked inflation and the ultimate price is paid by businesses, industry and ordinary citizens," Akhtar said. Pakistan is also mired by political uncertainty. The seven-week- old coalition government fractured last week over the reinstatement of judges' sacked by President Pervez Musharraf under an emergency order last November. Nine ministers from the federal cabinet, belonging to a major coalition partner Pakistan Muslim League party of former premier Nawaz Sharif, resigned on May 13. On Friday there were media reports that tension had arisen between the Pakistan Peoples Party (PPP), which leads the ruling coalition, and the embattled president. Asif Ali Zardari, the head of the party and the widower of slain former premier Benazir Bhutto, said in a recent interview that his party was facing immense public pressure for ousting Musharraf.
