KARACHI: Currency market experts have warned that the absence of channels for attracting dollar inflows could pressure the rupee as the government may need to borrow from commercial banks at higher interest rates to meet its debt repayment obligations.

They also noted that the US dollar is gaining strength against major Asian and European currencies following Donald Trump`s taking over as the 47th president of the world`s largest economy. This could further contribute to weakening the rupee, which has remained stable against the greenback for over a year thanks to some stringent measures, including restricting outflows and a crackdown against smuggling.

At the same time, some merchandise exporters said the country needs to remain competitive in the regional markets to attract orders at lower prices, which may depreciate the rupee.

Currency experts offer several reasons for possible rupee depreciation, including the emergence of a stronger dollar after Mr Trump announced import tariffs for China and Europe, poor SBP foreign exchange reserves with high outflows for debt servicing and profit repatriation by multinationals.The profit outflow on foreign investment was almost equal to the foreign direct investment the country received during the first half of FY25. The FDI and the repatriation of profits totalled $1.3bn and $1.2bn, respectively, during July-December 2024-25.

`Financial markets` confidence is shaking as the country is borrowing at commercial rates to meet the debt servicing requirement,` said a banker, adding that the government recently announced to borrow $1bn from two Middle Eastern banks at 6 to 7pc interest rate. `It does not sound good for the exchange rate, he remarked.

`China has yet to announce the rollover of loans. Despite the UAE and Saudi Arabia extending their dollar deposits with the State Bank of Pakistan for one more year, the country still needs more commercial borrowing, which will severely damage the confidence in the rupee`s strenght,` said the banker.

Pakistan is to pay a total of $26.1bn as debt servicing in FY25, partially paid and rolled over, but still, a large amount is required to meet the target.

`Currency traders think that weakening of regional currencies, especially Indian rupee (INR) , will put pressure on the Pakistani currency, as well a rate cut, if any, on Monday evening,` said FaisalMamsa, a currency expert and CEO of Tresmark.

The leading opinion is that there will be a minor adjustment to rupee rates, but they will still trend below the Rs280 level in the coming week, he added.

The exchange rate in Pakistan has been stable for more than a year despite poor economic growth and an increasing trade deficit. The only good is the current account surplus supported by 33pc higher remittances in the first 6 months of FY25.

`The government announced an increase in exports of up to $60bon, but exports couldfallin the second half of this fiscal year. Managed exchange rate will not work anymore,` said Amir Aziz, an exporter of textile products, adding that despite being 4th largest economy, India depreciated INR by 2.2pc since October 2024.

The INR has weakened by 1.6pc since November 2024, driven by a stronger US dollar. The INR depreciated 0.47pc against the dollar during April-September, but the decline accelerated to 2.2pc since Oct 2024.

Mr Mamsa said that next week`s US Fed meeting will be critical.

Unlike the European Central Bank (ECB) and Bank of Canada, which have cut rates, the Fed wants to take a `pause`. If the Fed does not cut the interest rate, the dollar will appear stronger.