Rupee to hold at Rs278/USD in 2026 as Pakistan’s FX buffers improve: BMI

BMI, a Fitch Solutions Company, has pushed back its forecast for a depreciation of the Pakistani rupee to 2027, revising its end-2026 projection to Rs278 per US dollar from Rs288 previously, citing improved foreign exchange buffers, tight monetary policy and better access to international capital markets.

The firm now expects the rupee to remain around Rs278/$ through 2026, before weakening to Rs292/$ by end-2027 as concerns over export competitiveness and the widening trade deficit put pressure on the currency.

“We now expect policymakers to hold the rupee at around PKR278/USD through 2026, instead of devaluing the currency to PKR288/USD by year-end as we previously forecast,” read the report.

BMI noted that the near-term risk of a disorderly devaluation has eased with Pakistan’s FX buffers continuing to improve despite higher energy import costs and sizeable external debt repayments.

“We expect policymakers to devalue the rupee to around PKR292/USD by end-2027 to restore export competitiveness,” it said.

SBP projected to bring down policy rate to 16% by 2024-end: Fitch Solutions’ BMI report

BMI said that the rupee’s real effective exchange rate rose to an eight-year high of 107.9 in July, which is eroding export competitiveness, while making imports more attractive.

The imbalance is already visible in the merchandise trade deficit, which widened by 34.6% from USD29.4bn in FY24/25 to USD39.6bn in FY25/26, it said.

“Strong remittance inflows have so far prevented a sharper deterioration in the external position, but are unlikely to offset a widening trade deficit indefinitely. We therefore expect policymakers to place greater weight on supporting exports and growth, with easing inflationary pressures in H2 2027 creating room to devalue the currency,” BMI said.

The research firm said that a tight monetary policy should support the rupee.

It highlighted that the State Bank of Pakistan (SBP) raised its policy rate by 100 basis points to 11.50% in April as inflation accelerated following the US-Iran conflict.

“Although higher global energy and food prices should keep inflation above the SBP’s 5-7% target for the rest of FY2026/27 (July-June), we expect the SBP to stand pat to avoid placing additional pressure on growth.

Even so, the current policy rate remains well above the 7.00% seen before the 2022-2023 balance-of-payments crisis, helping to discourage capital outflows and support currency stability. A stable exchange rate should, in turn, help contain imported inflation and anchor medium-term inflation expectations,” BMI said.

It warned that a prolonged or more severe escalation of the US-Iran conflict will likely keep global energy prices higher for longer. “A sustained increase would widen the import bill, weaken its external position and increase the risk of a devaluation,” BMI said.