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Pakistani rupee forecast: Has PKR bottomed out?

14:45, 8 August 2022

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A picture of several Pakistani rupees
The Pakistani rupee is the official currency for Pakistan. Photo: UmairAshfaq / Shutterstock.com

The Pakistani rupee (PKR) gained 5.8% in the past month, rising the most in over five years, after it plunged to a record low towards the end of July.

Higher payments for exports, moves by the State Bank of Pakistan (SBP) to crack down on foreign exchange operators, and the announcement of an investment from Qatar, lifted the rupee from the lows.

What has been driving the volatility in the value of the rupee against other currencies, and how is it expected to perform in the future? Will the rupee continue to rebound or come under renewed pressure? In this article we review the latest Pakistani rupee forecast outlook.

What is the PKR?

PKR is the abbreviation for the Pakistani rupee, the official currency for Pakistan. The value of the PKR is measured against other currencies, creating the exchange rate. For example, PKR/USD measures the value of the rupee against the US dollar (USD). The exchange rate determines how many rupees are needed to buy one US dollar, which is the currency used in international trade and determines the costs of imports into Pakistan.

What drives the Pakistani rupee?

What determines the value of Pakistan’s rupee? Foreign exchange (forex) rates are typically driven by a country’s economic growth, the value of its imports and exports, and monetary policy, which determine whether the country is an attractive destination for investments and whether the currency is in demand.

As a consumption-based economy, Pakistan relies on imports of commodities such as steel, chemicals and plastic. The country’s imports have soared over the past two years, increasing the trade deficit and draining its foreign currency reserves. Pakistan’s trade deficit in US dollar terms widened by 55.7% in the year to June as imports increased by 24%, according to data from Pakistan’s Bureau of Statistics. 

The rupee gained some reflection in early August as trade data for July showed that Pakistan’s imports fell to $4.86bn, down by 12.81% in dollar terms from July 2021 and by 38.31% from June 2022, when they soared to a record high of $7.9bn. The decline in imports reduced demand for dollars, which had put pressure on the country’s foreign exchange reserves.

Historical PKR performance

The Pakistani rupee has been in a long-term decline against other currencies such as the US dollar, Indian rupee and the euro since early 2018, when it transitioned to a free-floating exchange rate against the US dollar from a managed rate. Pakistan has since faced ballooning trade deficits and repeated currency devaluations.

The Pakistan rupee has plunged in value against the US dollar, with 140 rupees needed to buy one dollar at the start of 2019 and 160 needed by the end of 2020, as the US dollar strengthened during the Covid-19 pandemic.

The decline in the value of the rupee accelerated in the second half of last year, with the USD/PKR currency pair surpassing 200 rupees for the first time in May 2021. The exchange rate ended 2021 at 176.20.

Part of the reason for the devaluation was the collapse of the banking system in neighbouring Afghanistan following the US withdrawal in August 2021, with local media reports indicating that $2m in dollars is being taken across the border from Pakistan into Afghanistan every day, contributing to the dollar shortage in Pakistan. 

USD/PKR historical price chart

Pakistani rupee performance in 2022

The SBP has been using the country’s foreign currency reserves to try to slow the rupee’s depreciation in 2022, further reducing the number of US dollars left in the country.

The rupee’s decline accelerated in April when Prime Minister Imran Khan was ousted in a no-confidence vote and the government collapsed, putting at risk the country’s loans from the International Monetary Fund (IMF). The rupee lost 15% of its value in July, sliding to a rate of more than 240 against the US dollar on 28 July.

But the IMF indicated that by increasing its petroleum development levy (PDL) on 31 July, Pakistan met the preconditions for a loan under its seventh Extended Fund Facility (EFF) programme review. 

The IMF had said in a statement on 13 July: “Pakistan is at a challenging economic juncture. A difficult external environment combined with procyclical domestic policies fuelled domestic demand to unsustainable levels. The resultant economic overheating led to large fiscal and external deficits in FY22, contributed to rising inflation, and eroded reserve buffers.”

International ratings agencies Fitch Ratings, Moody’s and S&P Ratings all downgraded Pakistan’s credit rating to negative in mid-July, citing the country’s high debt and dwindling foreign currency reserves. Fitch noted that SBP’s liquid net foreign exchange reserves declined to about $10bn in June, equivalent to just one month of external payments and down from roughly $16bn a year earlier.

Pakistan’s government has taken action to support the currency. At its meeting on 7 July, the SBP’s Monetary Policy Committee (MPC) raised its headline interest rate by 125 basis points to 15% and provided incentives for exports. 

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“This combined action continues the monetary tightening under way since last September, which is aimed at ensuring a soft landing of the economy amid an exceptionally challenging and uncertain global environment. It should help cool economic activity, prevent a de-anchoring of inflation expectations and provide support to the rupee in the wake of multi-year high inflation and record imports,” the committee said in a statement

On 31 July, the SBP and the country’s finance ministry issued a rare joint statement calling the rupee’s depreciation “temporary”.

“The exchange rate has come under significant pressure, especially since mid-June. It has been driven by general US dollar tightening, a rise in the current account deficit (exacerbated by a heavy energy import bill in June), the decline in foreign exchange reserves, and worsening sentiment due to uncertainty about the IMF programme and domestic politics,” the statement said. “However, important developments have happened recently that will address both of these temporary issues… Going forward, as the current account deficit is curtailed and sentiment improves, we fully expect the rupee to appreciate.”

The SBP announced on 3 August that it had started inspections of exchange companies “…in view of recent volatility in the exchange rate and the difference between the interbank rate and the rate offered by Exchange Companies (ECs) and banks to their customers”. It suspended the operations of two companies for violation of regulations.

The SBP also announced it had set up a joint interaction committee with the Federation of Pakistan Chambers of Commerce & Industry (FPCCI) to improve coordination. 

The SBP’s Acting Governor Murtaza Syed told the FPCCI that the “SBP believes that rupee is undervalued at the moment and dollar has overshot in the forex market due to several reasons; however, he hoped that it will come down to its real value in 2-3 months.” 

FPCCI President Irfan Iqbal Sheikh noted that businesses are being affected by the “unavailability of dollars, shortage of industrial raw materials and the resultant disruptions in the production processes”.

On 23 August, the new Pakistani Prime Minister Shehbaz Sharif travelled to Qatar in the hopes of generating trade and investment for his country. One day later, the Qatar Investment Authority (QIA) announced it would aim to spend $3bn on various commercial and investment sectors in Pakistan. 

What is the Pakistani rupee forecast outlook against other currencies in the current environment? Will the government’s policies provide support to the rupee or will it shed more value on the international forex markets? Read on for the latest PKR forecast analysis.

Pakistani rupee forecast: Will the rupee rebound?

Analysis by Trading Economics showed that the Pakistani rupee was “likely to see more downward pressure as political turmoil continues and as the US dollar and commodities remain high, weighing on the country’s reserves and threatening the external position and public financing conditions”. 

In its Pakistani rupee forecast for 2022 (as of 25 August), the data provider expected the USD/PKR exchange rate to move to 217.65 by the end of this quarter and hit 227.39 in 12 months’ time, according to global macro models and analysts’ expectations. 

Analysis by Trading Economics showed the PKR forecast against the British pound sterling (GBP) almost holding value from 259.787 on 25 August to 254.031 by the end of this quarter and 255.016 in one year. The UK is Pakistan’s third largest trading partner after the US and China, according to World Bank data

The rupee was expected to keep value against the euro, with the EUR/PKR exchange rate moving from 219.201 on 25 August to 215.767 by the end of the quarter and 217.065 in one year, according to Trading Economics’ analysis.

The USD/PKR forecast by algorithm-based service Wallet Investor estimated that the exchange rate could move to 218.50 by the end of this year. But the site’s long-term Pakistani rupee forecast for 2025 indicated that the pair could return above the 240 level, ending the year at 257.45, and subsequently reach 281.88 in five years’ time – pointing to a fresh low for the value of the rupee. 

In its PKR prediction against GBP, Wallet Investor expected the rupee to maintain its value against the British pound, ending 2022 at 259.02, and then lose value to close at 316.39 by the end of 2025 and 351.84 in five years’ time. Analysts have yet to issue a longer-term Pakistani rupee forecast for 2030.

When considering any Pakistani rupee forecast, it’s important to remember that currency markets are highly volatile, making it difficult for analysts and algorithm-based forecasters to come up with accurate long-term predictions. 

We recommend that you always do your own research. Look at the latest market trends, news, technical and fundamental analysis, and expert opinion before making any trading decision. Keep in mind that past performance is no guarantee of future returns and never invest more than you can afford to lose.

FAQs

Why is the Pakistani rupee falling?

The Pakistani rupee dropped to record lows against the US dollar and other currencies in July as the country faces tightening foreign exchange reserves, a high trade deficit and political uncertainty.

Will the Pakistani rupee get stronger in 2022?

The direction of the rupee for the rest of the year will depend on the central bank’s policies in protecting the country’s foreign exchange reserves, as well as the size of the country’s trade deficit and the political landscape.

Is it a good time to buy the Pakistani rupee?

Whether it is a good time to buy the Pakistani rupee will depend on your trading strategy, risk tolerance and portfolio composition. You should do your own research so you can make informed trading decisions based on your personal circumstances. And never trade more than you can afford to lose.

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