Pakistani rupee is projected to remain stable within the range of Rs277-282/$ over the remaining seven months of the current fiscal year, ending June 30, 2025, defying earlier expectations of Rs300 or higher.
The currency has appreciated by 0.3% in the first four months (July-October) of the fiscal year, closing at Rs277.70/$ on Friday, according to Topline Research.
Analysts project that the State Bank of Pakistan (SBP) may reduce its key interest rate by a cumulative 400-500 basis points by the fiscal year’s end, aiming to reach a rate of 12.5-13.5 percent, down from the current 17.5 percent.
Markets expect an immediate cut of 200 basis points on Monday, November 4, following a second month of single-digit inflation, which stood at 7.2 percent in October.
The SBP has already reduced the policy rate by 450 basis points since June 2024, aiming to support economic activity by lowering borrowing costs for businesses.
Financial experts anticipate a rate cut of 100-300 basis points, as Pakistan’s real interest rate (policy rate minus inflation) now stands around 10 percent, compared to a historical average of 3-4 percent. While larger cuts could encourage economic activity which resulting in sudden spike in the demand of US dollars, the SBP may avoid an aggressive reduction to manage US dollar demand carefully.
In a report titled ‘Pakistan Economy – Towards Recovery; External and Monetary Accounts Improving’, Topline Research Deputy Head of Research Shankar Talreja predicted that improving foreign exchange reserves could boost Pakistan’s credit rating. Fitch and Moody already have each raised Pakistan’s credit rating to CCC+ on July 29, 2024, and Caa2 on August 28, 2024, respectively, signaling stronger external stability.
Pakistan’s reserves are projected to reach $13 billion by June 2025 – a milestone last achieved in March 2022. This improvement is credited to the successful completion of a prior $3 billion Standby Arrangement (SBA) and the expected launch of a new $7 billion program with the International Monetary Fund (IMF), which could pave the way for further funding from bilateral and multilateral sources.
Due to greater foreign inflows, the PKR has appreciated 2.6 percent in FY24 and an additional 0.3 percent against US dollar in FY25.
Topline forecasts that the PKR will remain between Rs277-282 per dollar by June 2025, with a potential rise to Rs295-300 by mid-2026.
Meanwhile, Pakistan faces $10 billion in external payments for FY25, while the total gross financing requirement is estimated at $11.3 billion.
Real GDP growth is expected to stay moderate at 2.5-3 percent in FY25, influenced by a weaker performance in the agriculture sector due to poor cotton and wheat yields.
While agriculture posted its best growth in 19 years at 6.4 percent in FY24, it’s predicted to expand only 1 percent in FY25.
Average inflation for FY25 is projected to range between 7-8 percent, a steep drop from the 23.4 percent recorded in FY24, driven by a high base effect, declining food prices, and recent fuel price adjustments.
