As I told you in my last post that general consensus among analysts was that discount rate will be unchanged and will be held constant 12.5%. Unfortunately SBP surprises the financial market with the decision to increase discount rate by 50bps i.e. now the discount rate is 13% for the next two months.
SBP attributed this increase in rate to the "inflation concerns" and growing "fiscal deficit" (reaching at almost 6% of GDP). Remember inflation for the fiscal year 2010 was recorded to be 11.73%. SBP expects inflation to be around 11-12% for the next fiscal year.
This will have a devastating impact on the Market as this action wasn't expected as 90% of analyst were not expecting this. The range of Market plus the Target prices of Shares that I recommended will all change because of this action. Investors are advised to be cautious (as they always should be in Pakistani Market and that is one of the reason that I told to always book profits in Pak Market in my previous post). Long Term Investors don't need to panic, just to remind them Pakistani stock market at 10,500 level is still a cheapest market in the region. However now all investors need to be highly cautious and now should try to sell shares that have appreciated in value. Just to remind them all of the shares that I recommended have gone up (except PACE).