The Pakistani government’s push to strengthen rupee, but banks are raising alarms about the potential fallout. Authorities have directed financial institutions to lower the dollar exchange rate, aiming to stabilize the currency amid persistent economic pressures. However, bankers argue that setting rates below market levels could disrupt the financial ecosystem and fuel informal currency trading.
Details of Push to Strengthen Rupee
A recent high-level meeting in Islamabad, involving the State Bank of Pakistan (SBP) and finance ministry officials, focused on measures to curb the dollar’s value. Banks were instructed to sell dollars to importers at reduced rates and eliminate premiums on export proceeds. This push follows a crackdown on dollar smuggling to neighboring countries, which has already led to a Rs1.39 drop in the interbank rate and a Rs1.175 decline in the open market over a few days. Despite these gains, the banking sector warns that artificially controlling rates risks creating a parallel black market, a problem seen in past years when similar policies were enforced.
SBP Efforts
The SBP’s aggressive dollar purchases, totaling around $9 billion in the fiscal year 2025, have tightened supply, exacerbating shortages for importers. This has led to complaints about banks charging up to Rs2.50 above quoted rates for letters of credit. Meanwhile, the Pakistan Remittance Initiative, designed to boost inflows, faces scrutiny as the government considers cutting Rs86 billion in bank incentives, a move banks claim could reduce remittance flows, which hit a record $38.3 billion last year.
The Pakistan Business Forum has also weighed in, advocating for a fairer dollar rate around Rs260 to ease public debt and inflation, which has dropped to 4%. They argue the current rate of Rs283 is unsustainable, especially with a current account surplus of $2.106 billion in 2025. However, currency experts remain skeptical, noting that administrative measures may offer short-term relief but fail to address deeper market dynamics.
As Pakistan navigates this delicate balance, the tension between government directives and market realities continues to shape the rupee’s trajectory. The SBP’s upcoming monetary policy announcement could provide further clarity, but for now, the financial sector braces for potential challenges in maintaining exchange rate stability.
Published in SouthAsianDesk, July 29th, 2025
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