Bank of America strategists on Tuesday indicated that the Pakistani rupee (PKR) is poised for limited volatility in the near term, with the balance of risks not favoring a pronounced move either higher or lower.
The analysts highlighted that the PKR's real effective exchange rate has been stable and remains near long-run averages. In their assessment, this stability points to an absence of marked overvaluation pressures on the currency, suggesting that current market levels reflect a broadly appropriate valuation given prevailing conditions.
Despite this seemingly steady foundation, the strategists cautioned that they do not expect considerable upside for the PKR from present levels in the short term. They linked this constrained appreciation potential to the stance of Pakistani policymakers, who, in the strategists' view, appear to favour growth-supportive measures.
According to the Bank of America assessment, that pro-growth policy orientation is likely to preserve nominal exchange rate stability while also allowing authorities to build foreign exchange reserves. The analysts framed this as a dual outcome: maintaining exchange rate steadiness and supporting a measured accumulation of reserves consistent with growth objectives.
Bank of America further explained that a notable strengthening of the PKR would probably require more substantial portfolio inflows. The strategists specified that such inflows could materialize if borrowing by quasi-sovereign entities or private sector participants were to accelerate, which would increase capital flows into local currency assets.
Context and implications
The assessment underscores a cautious outlook in which the current account balance and a stable real effective exchange rate reduce the likelihood of sharp currency moves. At the same time, the absence of significant near-term appreciation prospects reflects both policy orientation and the dependence on portfolio inflows to alter the PKR's trajectory.
Because the analysts tied appreciable currency gains to stronger capital inflows from specific borrower groups, the outlook points to the importance of financing flows for any change in exchange rate momentum.
Conclusion
Bank of America's view is that the Pakistani rupee is appropriately valued today, will likely remain nominally steady under current policies, and would need increased portfolio inflows, potentially via expanded quasi-sovereign or private sector borrowing, to see substantial appreciation.