Pakistan Rupee seen stable at PKR278 through 2026

September 10, 2026 (MLN): Pakistan’s rupee is expected to remain broadly stable at around PKR278 per US dollar through 2026, supported by elevated interest rates, stronger foreign exchange reserves and improved access to international capital markets, according to an economic outlook by Fitch Solutions’ BMI.

The forecast marks a shift from BMI’s earlier expectation that the rupee would weaken to PKR288/USD by end-2026.

BMI said the risk of a disorderly currency devaluation has eased as Pakistan’s foreign exchange reserves continue to improve despite higher energy import costs and sizeable external debt repayments.

Foreign exchange reserves stood at $17.1 billion as of August 28, equivalent to around 2.6 months of imports, supported by strong remittance inflows and continued bilateral and International Monetary Fund (IMF) support.

The outlook noted that the State Bank of Pakistan raised its policy rate by 100 basis points to 11.5% in April as inflation accelerated following the escalation of the US-Iran conflict.

While higher global energy and food prices are expected to keep inflation above the central bank’s 5%-7% target for the remainder of fiscal year 2026/27, BMI expects the policy rate to remain unchanged to avoid putting additional pressure on economic growth.

The current policy rate remains well above the 7% level recorded before Pakistan’s 2022-23 balance-of-payments crisis, helping discourage capital outflows and support currency stability. A stable rupee could also help contain imported inflation and anchor medium-term inflation expectations.

Pakistan’s improved access to international capital markets is expected to provide additional support to foreign exchange reserves and reduce refinancing risks.

Fitch Ratings maintained Pakistan’s sovereign rating with a stable outlook, while S&P Global Ratings and Moody’s Ratings upgraded their respective ratings by one notch over the past two months, reflecting progress on IMF-backed reforms and fiscal consolidation.

Pakistan’s fiscal deficit narrowed to 2.6% of GDP in fiscal year 2025/26, its lowest level in 21 years, according to the outlook.

On September 3, Pakistan raised $3 billion through a dual-tranche Eurobond issuance, marking its largest-ever international bond sale and helping ease concerns over near-term external debt obligations, including $1.7 billion in dollar-denominated debt due in 2026.

Improved access to international markets could allow Pakistan to secure additional external financing, reduce refinancing risks and provide policymakers with greater room to maintain currency stability.

However, the rupee is expected to come under gradual depreciation pressure in 2027, with BMI forecasting the currency to weaken to around PKR292/USD by end-2027 as concerns over export competitiveness increase.

The rupee remains overvalued in real effective exchange-rate terms, with the index reaching an eight-year high of 107.9 in July. BMI said the stronger real exchange rate is eroding export competitiveness while making imports more attractive.

Pakistan’s merchandise trade deficit widened 34.6% to $39.6 billion in fiscal year 2025/26 from $29.4 billion a year earlier.

Although strong remittance inflows have helped prevent a sharper deterioration in the external position, they are unlikely to fully offset a widening trade deficit indefinitely.

BMI expects policymakers to place greater emphasis on supporting exports and economic growth, with easing inflationary pressures in the second half of 2027 creating room for a gradual currency adjustment.

Risks to the currency outlook remain tilted toward an earlier or sharper devaluation, particularly if the US-Iran conflict escalates further or persists for an extended period.

Oil prices are trading close to $100 a barrel, a level last seen in July. A sustained rise in oil prices could increase Pakistan’s import bill, weaken the external position and intensify pressure on the rupee.

A prolonged period of elevated energy prices could therefore force policymakers to allow a faster depreciation than currently forecast.

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