Fitch sees Rupee sliding to 295 per USD by FY26

April 22, 2025 (MLN): Pakistan's central bank is expected to allow a gradual weakening of the rupee to ease current account pressures as the economy picks up pace, Fitch Ratings said in its latest assessment.

According to Krisjanis Krustins, Director of Asia-Pacific Sovereign Ratings at Fitch, the rupee is projected to decline to Rs285 against the US dollar by the end of June 2025, and further depreciate to Rs295 by the end of FY26.

The move is seen as part of a strategy to maintain external stability amid rising economic activity.

Despite recent efforts to stabilise the currency, the rupee remains one of the region’s underperformers, falling approximately 0.7% year-to-date, according to Bloomberg data.

The ratings agency noted that while the weakening trend may increase import costs, it would help manage the widening trade deficit and maintain foreign exchange reserves, especially as Pakistan navigates its post-IMF program economic roadmap.

The State Bank of Pakistan did not immediately respond to a request for a comment on the outlook.

The forecast comes after the rupee strengthened and stabilized last year, outperforming most emerging market peers.

Prime Minister Shehbaz Sharif’s government secured multiple loans from the International Monetary Fund after escaping a near default in 2023. Fitch last week upgraded the country’s credit rating, citing confidence in Pakistan’s ability to sustain reforms.

While slowing inflation has given room to policymakers to lower borrowing costs to boost activity, the central bank held its benchmark rate for the first time in almost a year in March due to risks from trade disruptions. Pakistan’s economy is slowly gaining pace with import volumes rising for a while but have been offset by a drop in oil prices.

“We understand that the state bank is reasonably concerned about that,” Krustins said in a Fitch webinar on Tuesday. “While they’re managing that by holding onto higher rates for longer, we think they’ll also manage that by allowing a bit more currency depreciation,” he added.

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