Karachi – Despite nearly three weeks of conflict in the Middle East, Pakistan’s rupee has demonstrated surprising stability, offering a measure of reassurance to both the State Bank of Pakistan (SBP) and the government. This resilience, a key indicator of economic health, comes as a welcome development amid global uncertainties and regional pressures. The stability of the Pakistani rupee is a significant factor for a nation heavily reliant on imports and vulnerable to fluctuations in the international market, and understanding the dynamics at play is crucial for businesses and investors alike. The focus on maintaining exchange rate stability has been a priority for the SBP.
Throughout the current fiscal year, predictions of significant rupee devaluation have largely failed to materialize, even as the war in the Middle East intensified. This stands in contrast to the experience of other regional currencies. According to reports, the Indian rupee has depreciated by as much as five percent, falling from Rs88 to Rs92 against the US dollar during the period of the conflict, with continued downward pressure anticipated. This divergence highlights Pakistan’s unique position and the measures taken to safeguard its currency.
Managing the Exchange Rate and Rising Reserves
Financial sector experts suggest that the rupee’s stability is, at least in part, a result of active management by the SBP. Whereas acknowledging the potential risks posed by the ongoing war, analysts believe the central bank has been strategically intervening in the market. Data released by the SBP shows that the country’s foreign exchange reserves have risen by $2.017 billion since July 2025. Commercial banks have as well seen an improvement in their holdings, increasing by $595 million to $5.257 billion. Combined, Pakistan’s total reserves now stand at $21.598 billion, representing an increase of $2.622 billion since July 2025. This improved reserve position provides the SBP with greater capacity to manage exchange rate fluctuations and meet import obligations.
The SBP has reportedly been purchasing dollars from the interbank market to bolster its reserves, a strategy that appears to be yielding positive results. The continued inflow of remittances, reaching $3.3 billion in February, has provided crucial support. While February’s inflows were lower than those recorded in January, remittance levels remain strong, and experts anticipate a potential surge during the upcoming month of Ramadan, historically a period of increased remittances. Millions of Pakistanis working in the Middle East contribute significantly to these inflows, with their remittances accounting for 53% of the total during the first eight months of the current fiscal year.
Impact of the Middle East Conflict and Remittance Flows
However, the escalating conflict in the Middle East poses a threat to these vital remittance flows. The war has disrupted employment opportunities for many Pakistani workers in the region, and the creation of fresh jobs has stalled. The government is actively encouraging Pakistanis to seek employment opportunities abroad, but the closure of opportunities in Arab countries due to the war presents a significant challenge. The potential for a $4 billion hit to Pakistan’s economy due to the Middle East crisis, as reported by MSN, underscores the severity of the situation.
Despite these challenges, dollar availability has improved, benefiting importers who had previously faced payment difficulties. As of Wednesday, the US dollar traded at Rs279.45 in the interbank market, a slight appreciation of two paise, while the open market rate stood at Rs290.32, according to the Exchange Companies Association of Pakistan (ECAP). This suggests a degree of confidence in the market and the SBP’s ability to manage the situation.
IMF Talks and Travel Trends
The ongoing talks with the International Monetary Fund (IMF) are also viewed positively by the financial sector, providing further support for the rupee. The government has characterized these discussions as constructive. Despite the regional conflict, flights to Dubai continue to operate, and Umrah travel remains uninterrupted, although airfares have experienced a significant surge. Return ticket costs for Umrah have risen from a range of Rs150,000-200,000 before the war to Rs300,000-400,000 for a one-way trip. While overall air travel to the Middle East has declined, it has not been completely halted.
Currency dealer Zafar Paracha emphasized the positive implications of the rupee’s stability, stating, “This is highly appreciable and extremely supportive for the country that, despite almost three weeks of war, the exchange rate is under control.” He also noted the practice of sending foreign currencies to Dubai for conversion into dollars and subsequent repatriation to Pakistan, highlighting the ingenuity employed to maintain dollar inflows.
Looking ahead, the continued stability of the rupee will depend on a number of factors, including the duration and intensity of the conflict in the Middle East, the success of ongoing negotiations with the IMF, and the continued flow of remittances. The SBP’s ability to effectively manage the exchange rate and maintain adequate reserves will be crucial in navigating these challenges. The next key development to watch will be the outcome of the ongoing IMF discussions and any subsequent policy announcements.
Published in Dawn, March 19th, 2026
Disclaimer: This article provides information for general knowledge and informational purposes only, and does not constitute financial advice. Readers are advised to consult with a qualified financial advisor before making any investment decisions.
