The Pakistani rupee experienced a modest decline of 9 paisas against the US dollar on Thursday, January 2, 2025. It closed at PKR 278.64 in the interbank market, slightly down from PKR 278.55 recorded on December 31, 2024. The depreciation was attributed to increased demand for dollars following the reopening of currency trading after the New Year’s bank holiday declared by the State Bank of Pakistan (SBP) on January 1, 2025.
Currency market analysts highlighted that the rupee came under pressure due to heightened dollar demand, driven primarily by import and corporate payments. The pressure was exacerbated by the release of trade data from the Pakistan Bureau of Statistics (PBS), which reported a significant 17.44% increase in Pakistan’s import bill. Imports surged to $5.29 billion in December 2024, compared to $4.50 billion in November 2024, further straining foreign currency reserves and increasing demand for the dollar.
Adding to the rupee’s challenges was a decline in Pakistan’s foreign exchange reserves. The SBP’s latest report indicated a $262 million decrease in reserves within a week. As of December 20, 2024, the reserves stood at $16.371 billion, down from $16.633 billion on December 13, 2024. Lower reserves reduce the central bank’s ability to intervene effectively in the currency market, compounding pressures on the rupee.
Despite the short-term depreciation, there are indications of resilience in Pakistan’s external sector. Between July and November 2024, the country recorded a current account surplus of $944 million, a marked turnaround from the $1.68 billion deficit reported during the same period in 2023. This shift underscores progress in rebalancing Pakistan’s economy, offering some stability to the rupee and instilling market confidence.
Another positive development is the remarkable growth in remittances from overseas Pakistanis. In the first five months of the fiscal year 2024-25, remittances surged by 34%, reaching $14.77 billion compared to $11.05 billion during the same period in the previous year. These inflows have provided critical support to domestic liquidity and alleviated some of the external financial pressures on the economy, contributing to the rupee’s stability.
Analysts remain cautiously optimistic about the rupee’s long-term outlook. Although the recent decline reflects short-term challenges, the broader economic indicators suggest improvement. The rise in remittances and the current account surplus are expected to provide much-needed support for the rupee in the months ahead.
However, experts caution that sustaining these positive trends will require continued focus on addressing structural economic challenges, particularly in managing the trade deficit and bolstering foreign exchange reserves. The SBP’s proactive measures, including adjustments to monetary policy and interventions in the currency market, will play a pivotal role in maintaining stability.
As Pakistan navigates these challenges, the rupee’s performance will remain closely tied to the country’s ability to sustain economic reforms, attract foreign investment, and strengthen its external sector. The modest decline observed this week underscores the importance of a balanced approach to managing demand for the dollar while fostering long-term economic stability.