The Pakistani Rupee (PKR) has come under renewed pressure as rising import demands and persistent payment tightness since January continue to test the financial system. Though the State Bank of Pakistan (SBP) maintains a composed stance, opinions across the banking sector remain divided over the long-term sustainability of the central bank’s currency strategy.
A bullish treasury officer, defending SBP’s approach, summarized the situation succinctly: “Dollars aren’t short, just expensive.” He noted that while the currency market is tight, it is not in a state of panic. However, contrasting views from other major banks paint a more strained picture. A senior executive at one commercial bank described the scenario as “panic,” highlighting that oil import letters of credit are being settled at PKR 287–288 to attract remittances by offering more competitive rates. He expressed concern that the PKR is likely to depreciate further.
The divergence in sentiment is largely rooted in SBP’s quiet yet impactful market presence. For over a year, the central bank has been managing liquidity by buying surplus dollars from some banks while denying access to others facing shortages. This method, though technically non-interventionist in appearance, has had the effect of squeezing banks in need of liquidity. “SBP is metaphorically holding a gun to our heads,” said a frustrated treasury executive, pointing to the added strain on banks scrambling to secure inflows to cover outflows.
While some bankers support SBP’s measured tactics, predicting that reserves will soon climb to $14 billion, others remain wary. “There’s a limit to how long the SBP’s strong-arm tactics will work. Eventually, natural market forces will prevail,” cautioned another treasury insider.
Despite the split views, a cautious middle ground is emerging across the banking sector. Most agree that interest rates have likely bottomed out in line with cooling inflation, and any further cuts, if they happen, are expected to be modest—likely no more than 100 basis points. The return of single-digit interest rates appears unlikely in the near term.
In terms of exchange rate strategy, bankers report a subtle shift in the central bank’s management approach. Where SBP once allowed depreciation at roughly 5 paisas per day, the rate has now shifted to about 15 paisas per day. According to one banker, this gradual adjustment prevents panic while facilitating a controlled weakening of the rupee.
Meanwhile, the open market remains calm, with no signs of speculative currency runs. Importers are cautious, and exporters are holding back amid uncertainty. The banking sector agrees that remittances remain critical. Yet, the recently passed federal budget did not include explicit incentives to boost remittance inflows, raising concern among financial institutions. While the finance minister has informally assured banks of continued support, official measures remain absent from public policy documents.
SBP Governor Jameel Ahmed has projected that foreign reserves will rebound to $14 billion by the end of June. However, with current reserves standing at just $9 billion and the Real Effective Exchange Rate (REER) hovering around 97–98, the rupee is not overvalued, suggesting room for further depreciation under market dynamics.
For now, the rupee’s future hangs in a delicate balance. As Pakistan navigates external account challenges, interest rate stabilization, and evolving global financial conditions, SBP’s careful calibration will remain key. Whether cautious optimism translates into sustainable stability remains to be seen.