Review: How did Pakistan's markets react to the hike in fuel prices?

After the government notified the single largest hike in the prices of petroleum products on Thursday night, Pakistan's commodity prices and markets reacted in a mixed manner.

While announcing the increase in the petrol price, Finance Minister Miftah Ismail expressed hope of Pakistan reaching an understanding on a staff-level agreement with the IMF. This was key for the currency and equities markets.

The energy subsidy's rollback was a key condition laid down by the global lender for revival of the $6-billion Extended Fund Facility.

POL products’ prices hiked by Rs30 per litre

While the minister acknowledged that the increase would contribute to inflation to some extent, he stressed that the government had no other choice as it had already provided Rs56 per litre subsidy on diesel. For context, inflation in April stood at 13.4%, prompting the central bank to raise interest rates by 150 basis points in its monetary policy announcement earlier this week.

Following the increase in fuel prices, the National Electric Power Regulatory Authority (Nepra) approved on Friday a price increase of Rs4.83 per unit in K-Electric’s power tariff on account of fuel cost adjustment for March 2022. The increase will reflect in the bills of customers for June 2022.

Nepra okays Rs4.83 per unit hike in K-Electric tariff

The government also raised flour prices by Rs180. As per a notification issued by the Utility Stores Corporation of Pakistan, a 20kg bag will now be available at Rs980 compared to the previous price of Rs800, an increase of Rs180. In other markets, the price is likely to be much higher.

Govt jacks up flour rates at utility stores

Meanwhile, the price of a 10kg flour bag jumped up to Rs490 per bag as compared to the previous rate of Rs400, registering a hike of Rs90.

However, the equities and currency markets reacted positively to the development as the rupee ended its 16-session decline and recovered by a significant Rs2.25 or 1.13% to close at 199.76 in the inter-bank market.

After a 16-session losing streak, rupee gains in spectacular fashion

Investor spirits at the Pakistan Stock Exchange strengthened as well as the KSE-100 index powered over 1,000 points in intra-day trading before closing with a gain of 319.74 points or 0.75% at 42,861.45 points as profit-taking kicked in.

Stock market rejoices, KSE-100 gains over 900 points in intra-day trading

Regardless of how markets reacted, one can safely say that inflation is likely to jump in coming months. How the government tackles the incoming wave of higher inflation is the real question.