PKR walks a tightrope between stability and slow decline

February 13, 2026 (MLN): Pakistan’s currency appears set for a period of relative calm, but the underlying pressures have not disappeared as the rupee is expected to hover close to Rs280/USD through 2026, relying on tight monetary policy and measured foreign-exchange intervention to anchor expectations.

This near-term stability has been crucial in easing imported inflation and restoring a sense of economic predictability after the sharp depreciation seen during the 2023 balance-of-payments crisis, according to an outlook by BMI, a FitchSolutions Company

Still, the calm comes with caveats, as widening trade gaps, energy import dependence, and exposure to global commodity swings continue to cast a long shadow over the currency’s longer-term path.

Authorities are likely to remain firmly focused on defending the rupee in the short run.

Source: BMI

Since early 2024, the currency has traded within a relatively narrow band, giving policymakers confidence that disciplined monetary settings can hold the line.

Pakistan’s interest rate stance remains meaningfully tighter than that of the United States, creating a sizeable real rate differential that discourages capital outflows.

At the same time, foreign-exchange reserves have been strengthened by support from the International Monetary Fund, including a significant disbursement in late 2025 that pushed reserves to their highest level in nearly four years.

A softer US dollar has also reduced the urgency for heavy market intervention, collectively allowing the central bank to maintain currency stability without exhausting its buffers.

Despite these supports, warning signs are becoming harder to ignore.

Export performance has softened while imports particularly energy and essential goods have risen sharply, shrinking the country’s import cover below internationally recommended comfort levels.

This imbalance leaves Pakistan exposed to sudden external shocks, where even a modest surge in global oil prices or a slowdown in remittances could quickly erode foreign-exchange cushions and force policymakers into a faster adjustment than planned.

The stability seen today is therefore less a sign of structural strength and more the result of active management and favorable timing.

Looking further ahead, the longer-term outlook suggests a gradual but steady weakening of the rupee rather than a dramatic collapse.

Pakistan’s economic fundamentals remain constrained by persistent trade deficits and a narrow export base dominated by textiles and apparel.

Rather than abandoning currency management altogether, authorities are expected to opt for a phased and predictable depreciation beginning around 2027, allowing prices to adjust slowly instead of risking a sudden spike in inflation.

BMI expects a 5% slide towards Rs294/USD by end-2027, reflecting an effort to balance competitiveness with price stability.

Even so, the risk of a sharper move cannot be dismissed. Climate-related disruptions such as floods have repeatedly damaged agricultural output and increased the need for imports, while geopolitical or energy-market shocks could swiftly inflate the country’s import bill.

Each delay in adjusting the exchange rate adds pressure beneath the surface, increasing the likelihood that an unexpected internal or external jolt could trigger a quicker correction.

While stronger policy discipline and continued engagement with international lenders make a repeat of the dramatic 2023 plunge less likely, the rupee’s path forward remains one of cautious stability today and measured vulnerability tomorrow.

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