Pakistan Rupee Overvalued Despite Recent Dip in Exchange Rate
Even with a recent adjustment, the Pakistan Rupee remains overvalued, impacting the nation’s economic landscape. In December 2025, Pakistan’s Real Effective Exchange Rate (REER) eased slightly to 103.73. This indicated a minor moderation in the rupee’s relative valuation. However, this figure still sits above the 10-year average of 103.0, as reported by Topline Securities.
Understanding the Real Effective Exchange Rate (REER)
The Real Effective Exchange Rate serves as a crucial economic indicator. It measures a country’s currency value against a basket of trading partners, carefully adjusted for inflation differentials. Consequently, a REER reading above 100 suggests that the local currency is relatively overvalued compared to its peer economies. In contrast, a lower reading signals improving competitiveness for a nation’s exports.
Challenges and Outlook for Pakistan’s Rupee
Despite the recent decline, the fact that Pakistan’s REER persists above its long-term average highlights ongoing mild overvaluation pressure. This pressure affects the rupee against major trading partners. Market participants, therefore, closely monitor various economic factors.
Looking ahead, Topline Securities forecasts a modest strengthening of the Pakistani rupee against the US dollar. Their projection anticipates the PKR/USD rate closing below Rs. 285 by June 2026. However, this positive outlook hinges on several critical conditions.
Factors Influencing Rupee Stability and Competitiveness
- Sustained Foreign Inflows: Continued investment from abroad is essential.
- Stable Remittance Growth: Consistent remittances from overseas Pakistanis provide vital support.
- Controlled Imports: Managing import levels effectively helps stabilize the currency.
- Policy Discipline: Adherence to Pakistan’s ongoing economic reform framework is paramount.
Analysts emphasize that a further decline in the REER towards its long-term average could significantly enhance Pakistan’s trade competitiveness. Moreover, such a shift would concurrently help keep inflationary pressures in check, benefiting the broader economy.
