The Pakistani rupee is expected to remain stable throughout fiscal year 2025, supported by improving economic conditions and positive market sentiment. Analysts forecast the currency to trade within a controlled range, reflecting growing confidence in Pakistan’s financial stability. According to Tresmark, a financial terminal, the rupee is projected to trade between 278 and 282 per dollar during the first four months of the year, from January to April. By June, it could adjust slightly to 282-285 and may range between 285 and 290 by December. This outlook is strengthened by Pakistan’s credit default swap (CDS) reaching a multi-year low of 505 basis points, signaling improved investor confidence.
Key factors influencing the rupee’s performance include inflation, the real effective exchange rate (REER), and the current account balance. The REER for December 2024 stood at 104.5, a sustainable level compared to regional peers like India and Bangladesh. Inflation has significantly declined, reaching 4.1% in December, the lowest rate in seven years. It is expected to drop further to 3.5% in February before climbing back to 8% by May. Despite this expected rise, high real interest rates, predicted to remain above 11% throughout the fiscal year, are likely to continue attracting investments and controlling inflationary pressures.
The current account posted a surplus of $944 million in the first five months of FY2025, contrasting with previous years’ deficits. This improvement is attributed to strong remittance inflows and government initiatives like the Uraan programme, as well as strategic measures to control imports and bolster foreign exchange reserves. These reserves grew from $13.2 billion to $16.3 billion by the end of December 2024, aided by active management of exchange rate volatility and targeted interventions by the State Bank of Pakistan (SBP).
Various measures have been instrumental in stabilizing the rupee. Actions taken to curb speculative activities in grey and black markets have reduced pressure on the exchange rate. Import restrictions have further controlled foreign exchange outflows, while a new loan program from the International Monetary Fund (IMF) has enhanced market confidence. These efforts collectively transformed the rupee from one of the worst-performing currencies in 2023, with a depreciation of 24%, into a more stable currency in 2024, showing a modest appreciation of 1%.
Despite the positive outlook, certain risks could disrupt stability. These include a potential disengagement from the IMF, geopolitical tensions, or a sharp rise in global oil prices, all of which could challenge the rupee’s resilience. Nevertheless, the economic growth projection for FY2025 remains at 3.2%, supported by recovering demand and imports expected to pick up by March.
The rupee’s recent performance, combined with sound fiscal policies and a stable external account, highlights the progress made in Pakistan’s financial stability. If these trends persist, the rupee is poised for sustained stability, contributing to the country’s broader economic resilience and growth.