Key Takeaways
- BMI revises rupee forecast to Rs278/USD in 2026, citing improved foreign exchange buffers.
- State Bank of Pakistan expected to keep policy rate at 16% by end-2024.
- Rupee’s real effective exchange rate at eight-year high, eroding export competitiveness.
BMI, a Fitch Solutions Company, has revised its forecast for the Pakistani rupee, predicting it will remain stable at Rs278 per US dollar in 2026. This projection is based on improved foreign exchange buffers, tight monetary policy, and better access to international capital markets.
The firm notes that despite higher energy import costs and significant external debt repayments, Pakistan’s foreign exchange buffers have continued to improve. This has reduced the near-term risk of a disorderly devaluation, according to BMI.
However, BMI expects the rupee to weaken to Rs292/USD by the end of 2027 due to concerns over export competitiveness and the widening trade deficit. The report suggests that policymakers may devalue the currency to support exports and economic growth.
BMI highlighted that the rupee’s real effective exchange rate reached an eight-year high of 107.9 in July, which is detrimental to export competitiveness. The merchandise trade deficit widened by 34.6% from USD29.4 billion in FY24/25 to USD39.6 billion in FY25/26, indicating a growing imbalance.
Strong remittance inflows have helped mitigate the external position, but are unlikely to offset the widening trade deficit indefinitely. The firm expects policymakers to prioritize supporting exports and growth, with easing inflationary pressures in the second half of 2027 creating room for currency devaluation.
The State Bank of Pakistan (SBP) is projected to bring down its policy rate to 16% by the end of 2024. In April, the SBP raised its policy rate by 100 basis points to 11.50% due to accelerating inflation following the US-Iran conflict. Although higher global energy and food prices are expected to keep inflation above the SBP’s 5-7% target for the remainder of FY2026/27, the firm anticipates the SBP will maintain the current rate to avoid additional pressure on growth.
A tight monetary policy is expected to support the rupee, as the current policy rate remains well above the 7.00% seen before the 2022-2023 balance-of-payments crisis. This helps discourage capital outflows and supports currency stability, which in turn helps contain imported inflation and anchor medium-term inflation expectations.
BMI warns that a prolonged or more severe escalation of the US-Iran conflict could keep global energy prices higher for longer, potentially widening the import bill and weakening Pakistan’s external position, thereby increasing the risk of a devaluation.
