The Pakistani rupee is forecasted to trade within a narrow range against the US dollar in the coming week, with investors and analysts alike eagerly awaiting the State Bank of Pakistan’s (SBP) monetary policy announcement on November 4. This critical decision on interest rates is expected to significantly impact the rupee’s movement, as it will signal the SBP’s stance on supporting currency stability amid current economic dynamics.
Throughout the week, the rupee traded between 277.6 and 277.9 in the interbank market, closing at PKR 277.64 against the dollar on Friday. Market experts believe that, in the short term, the rupee will likely consolidate around this level as traders hold a cautious approach in anticipation of the SBP’s upcoming interest rate decision. The central bank’s Monetary Policy Committee is widely expected to announce a 200 basis points (bps) reduction, a move that would mark the fourth consecutive rate cut since June 2024, totaling a cumulative decrease of 650 bps.
Over recent months, the SBP has already implemented substantial rate cuts to support economic recovery, with reductions of 350 bps in July and September alone, totaling a 450 bps decrease since the beginning of fiscal year 2024. A further cut, according to analysts, could relieve cost pressures on businesses, potentially improving investment and consumer sentiment while easing financial strain on the broader economy.
While expectations are high for a 200 bps rate cut, some market participants, including financial analysts from Tresmark, suggest that the SBP may approach this decision cautiously. The central bank is likely weighing the benefits of an additional rate cut against the risks of over-stimulating demand too soon, which could add pressure on the currency. The gradual improvement in the rupee’s exchange rate stability over recent weeks has been bolstered by steady foreign exchange inflows and an enhanced external account position, supporting expectations for a maintained or slightly stronger rupee.
As of October 18, SBP reserves saw a minor increase of $18 million, bringing the central bank’s holdings to $11.04 billion. However, Pakistan’s total foreign exchange reserves declined by $94 million to $16.017 billion, with commercial bank reserves also decreasing by $112 million to $4.976 billion. Analysts emphasize that the rise in SBP reserves is helping to buffer the rupee against adverse external factors, as it underscores Pakistan’s ability to meet its foreign payment obligations in the short term.
Pakistan’s current account has also shown promising signs of stability. The country recorded a surplus of $119 million in September, following a $29 million surplus in August, which marks a significant improvement from a $218 million deficit in the same period last year. For the first quarter of fiscal year 2025, the current account deficit narrowed to $98 million—a dramatic 92% reduction year-over-year. Such data reflect a more balanced external position, giving the SBP greater flexibility in managing monetary policy without risking excessive exchange rate depreciation.
The SBP’s recent liquidity adjustments reflect an active approach to stabilizing the rupee. However, factors like the reported $74 million outflow of Treasury bills from Special Convertible Rupee Account (SCRA) accounts as of October 11, combined with a dip in swap premiums, have slightly dampened the incentives for exporters to engage in forward currency deals. In response, the SBP has conducted approximately $300 million worth of sell-buy swaps to sustain swap premiums. This approach has provided some temporary support, but economists suggest that a more sustainable currency buffer will be necessary to ensure long-term currency stability.
Another noteworthy factor impacting the rupee is the Real Effective Exchange Rate (REER), which currently stands below 100 at 98.5. This level suggests limited downward pressure on the rupee, as it reflects an exchange rate that is fairly aligned with economic fundamentals. This positioning may discourage speculative activity that could otherwise weaken the rupee and offers the SBP some latitude to proceed with further rate adjustments without endangering the currency’s stability.
As Pakistan heads into the new week, the rupee’s trajectory will likely hinge on both the SBP’s interest rate decision and broader macroeconomic indicators. With foreign exchange reserves steadying and the current account showing sustained improvement, the rupee appears positioned to maintain its current range against the dollar, barring unexpected external shocks. Investors are hopeful that these economic indicators, paired with prudent SBP monetary policy actions, will support a stable outlook for the rupee in the near future.