KARACHI: Pakistan’s rupee recorded a modest net gain of Rs5.066, or 1.8 per cent, against the US dollar during the first half of the current fiscal year, though currency experts caution that underlying pressures could return in 2026.
The dollar closed at Rs280.13 in the interbank market on Friday, compared to Rs285.22 on July 2, 2025. However, the local currency remains weaker than its level at the start of 2025, when the dollar traded at Rs278.56 on January 3.
Market participants said the exchange rate continues to be “managed”, but acknowledged that recent appreciation has helped stabilise the market and improved confidence among exporters and importers.
In a report released on Saturday, Tresmark Chief Executive Officer Faisal Mamsa noted that the rupee often defies conventional valuation models, as its movements are driven by “regime shifts” rather than smooth economic cycles.
He argued that models such as Purchasing Power Parity (PPP), Behavioural Equilibrium Exchange Rate (BEER), and Real Effective Exchange Rate (REER) frameworks assume political stability and consistent policy environments — conditions that rarely hold in Pakistan.
“Valuation matters in normal times. But at moments that define the rupee’s trajectory, sentiment and policy dominate valuation. That is when these models offer false comfort,” Mr Mamsa said.
Reviewing past crises in 2008, 2018 and 2022, he said currency turmoil was typically triggered by external factors such as political instability, policy paralysis, oil price shocks, inflation surges, geopolitical tensions and disruptions to IMF programmes.
“In each case, the trigger came from outside the foreign exchange market. The rupee was not the cause; it became the transmission channel,” he added.
Several analysts expect renewed dollar strength in calendar year 2026, despite higher foreign exchange reserves held by the State Bank of Pakistan. They warn that reserves alone may not be sufficient to offset widening trade and current account pressures, which have already begun to emerge in FY26.
While import compression in November helped generate a current account surplus, experts cautioned that further restrictions could dampen economic growth. Weak GDP growth remains a key concern for the government as it seeks to attract foreign and domestic investment.
“Further import cuts could result in another year of subdued growth around 2 per cent, increasing poverty without addressing the serious issue of joblessness,” said interbank currency expert and banker Atif Ahmed.
Mr Mamsa concluded that the rupee’s path in 2026 would be shaped less by valuation gaps and more by structural forces, including inflation and interest-rate differentials, political continuity, policy credibility, external financing capacity, fiscal discipline, reserve management, oil prices, export competitiveness and global geopolitical risks.
“These factors will not determine a single exchange rate number, but rather the path, volatility and resilience of the rupee. For Pakistan, currency crises have always been more about how the journey was managed than the final destination,” he said.
