The rupee is expected to face mounting pressure next week due to heightened dollar demand for debt servicing, year-end import obligations, and other financial commitments, according to a report released.
However, analysts predict the local currency will regain stability in 2025, buoyed by robust growth in remittances projected to reach $38 billion by the end of the year.
During the last interbank trading session on Monday, the rupee closed at 278.18 against the US dollar but weakened further by Friday, settling at 278.41. The pressure on the currency aligns with Pakistan’s financial outflows, despite a reported $729 million current account surplus in November. This surplus marks a stark improvement compared to a $148 million deficit in November 2023 and a $346 million surplus in October. Over the first five months of the fiscal year, Pakistan achieved a $944 million current account surplus, contrasting with a $1.67 billion deficit during the same period last year.
On Monday, the State Bank of Pakistan (SBP) reduced the policy rate by 200 basis points to 13 percent, aiming to stimulate economic activity. Meanwhile, Pakistan’s foreign exchange reserves held by the central bank increased by $31 million, reaching $12.081 billion as of December 13. The total forex reserves, including commercial banks, rose to $16.633 billion, with commercial banks’ reserves increasing by $1 million to $4.551 billion.
“Last week, the rupee faced significant pressure, and swap premiums collapsed due to substantial payments for debt servicing and strategic year-end transactions,” noted Tresmark in its report. “Despite these outflows, reserves still grew by $32 million, supported by SBP’s buy-sell swaps, which contributed to the collapse in swap premiums.”
Analysts expect the rupee to recover in January as swap pressures ease and forward-selling by exporters gains momentum. They also cite remittances as a key factor in sustaining the rupee’s stability.
With the implementation of the new non-filer tax law and reduced import appetite, monthly remittances are projected to rise by $250 million. This could bolster annual remittances to $38 billion in 2025, enhancing the rupee’s resilience and supporting economic stability.