Rupee may dip to 284.5 per dollar by end-FY25

KARACHI: The rupee is expected to continue to face pressure and may fall to 284.5 against the dollar by the end of this fiscal year ending in June due to the central bank’s dollar buying from the currency market to meet its foreign exchange reserve target, a report said on Saturday.

The local unit closed at 282.21 per dollar in the interbank market on Tuesday, but it declined further on Friday, closing at 282.96.

The rupee is likely to open weaker on Monday, with traders awaiting possible cues from the SBP’s interest rate decision due on the same day.

Most analysts and market players expect the SBP to keep its key interest rate unchanged at 11 per cent amid the recent escalation in regional tensions and the surge in oil prices.

“As noted in several previous updates, we expect the rupee to depreciate by 20 to 25 paisas each week. This pace is likely to accelerate as the June 30 reserves target deadline approaches,” Tresmark said in a report.

“In the last 10 days, we saw the rupee weaken by 100 paisa, whereas in the last three months it weakened by about 300 paisa. Expect the rupee to close this fiscal around the 284.5/$ level,” it added.

Some analysts forecast the local currency to clock in at Rs288-292 by December 2025 and Rs298-302 by June 2026.

The report stated that there appears to be an International Monetary Fund-driven target to achieve a $16 billion SBP reserve balance. To that tune, the SBP aggressively buys off any excess liquidity.

“We believe the SBP will achieve this target if the $1.4 billion climate financing is received (expected) and if the Finance Ministry is able to borrow $2 billion from Middle Eastern banks (again, expected). Pakistan is also preparing to repay part of the $500 million Eurobond in September,” it noted.

The SBP, in its monetary policy statement issued last month, said that on the back of the expected realisation of planned official inflows, its FX reserves are expected to rise to $14 billion by June 2025.

According to the Tresmark report, reserve building is not the only factor in the rupee depreciation. The regional currencies have also weakened, with the Indian rupee and the Bangladeshi taka depreciating by about 1.5 per cent in the last month.

The report expects that the rupee will consolidate in July as some pressures ease and as the dollar weakens against other global currencies. The dollar index has dropped to 98.4. Additionally, Brent crude oil prices, which rose from $64 to $74 this month, may settle at more sustainable levels. Meanwhile, Pakistan is considering new Eurobond and Panda bond issuances following improvements in its credit ratings. “The wild card would be the disproportionate escalation of the Iran-Israel conflict,” it said.