Rupee appreciates in 2024, analysts see stable trend next year

KARACHI: The rupee saw a 1.0 per cent increase in 2024, after depreciating for nine years in a row, thanks to growth in remittances, a closing gap between the interbank and parallel market exchange rates and favourable policies.

On Monday (Dec 30), the local currency closed at 278.47 to the US dollar in the interbank market. The rupee had ended at 281.86 versus the dollar during the previous trading session.

“[The] Pakistani rupee appreciated by 1.0 per cent against the US dollar in the outgoing calendar year 2024 after witnessing depreciation for nine consecutive years with an average annual decline of 10 per cent,” said Topline Securities in a note.

“The currency appreciated due to a robust remittances trend following narrowing difference in formal and informal exchange rates and expectations of a current account surplus in 2024,” it added.

The country’s external sector has seen significant improvements over the past 18 months under the guidance of the IMF, laying a strong foundation for sustainable economic growth. The country’s SBP foreign exchange reserves rose from $4.44 billion in June 2023 to $11.85 billion as of December 20, 2024, providing an import cover of over two months.

Pakistan posted a current account surplus of $729 million in November. This compares to a surplus of $346 million in the previous month and a deficit of $148 million in November 2023. Over the first five months of the fiscal year 2025, the country recorded a current account surplus of $944 million, in contrast to a deficit of $1.67 billion during the same period last year.

Finance Minister Muhammad Aurangzeb anticipates that remittances will reach an all-time high of $35 billion this year, up from $30 billion last year. Remittances saw a 5.0 per cent decline MoM but increased by 29 per cent year-on-year, reaching $2.9 billion in November. The cash sent home by Pakistani citizens working abroad rose by 34 per cent, totalling $14.8 billion in the five months leading up to November compared with the same period last year.

Given that there seem to be no perceived risks to the external position except that it is imperative for the projected external inflows to materialise on time, “we do not anticipate any significant pressure on the rupee, going forward,” said Taurus Securities in its report ‘Pakistan Investment Outlook 2025’, which was published this month.

“Consequently, our base case estimates USD to average PKR 280.6/USD for FY25, with our period-end forecast of PKR 282.8/USD. For FY26, we anticipate USD to trade at PKR 300.3/USD by the year-end,” the report said.

“Accordingly, we foresee an average devaluation of 4.7 per cent over the long-term horizon. Moreover, the rupee seems to be fairly priced considering the real-effective exchange rate (REER) index also,” it added.