Fitch expects Pakistan to allow rupee to gradually weaken: report

Pakistan’s central bank will allow the rupee to gradually weaken to manage pressures on the current account as the economy gains pace, according to Fitch Ratings, reports Bloomberg.

The ratings company sees the rupee falling to 285 against the dollar by the end of June and weakening further to 295 by the end of next fiscal year in 2026, according to Krisjanis Krustins, director of Asia Pacific sovereign ratings at Fitch. The currency is among the underperformers in the region, having fallen about 0.7 per cent so far this year, according to data compiled by Bloomberg.

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 stabilised last year, outperforming most emerging market peers. Prime Minister Shehbaz Sharif’s government secured multiple loans from the International Monetary Fund (IMF) after escaping a near default in 2023. Fitch last week upgraded the country’s credit rating, citing confidence in the 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 will also manage that by allowing a bit more currency depreciation,” he added.