ISLAMABAD: Fitch Ratings revised down its forecasts for the Pakistani rupee on Thursday for both this year and next due to a variety of factors including an increased flow of US dollars into neighbouring Afghanistan.

Fitch's forecast for the rupee's average rate this year is now 164 to the US dollar compared with 158 previously. For 2022, Fitch now expects an average rate of 180 versus a previous forecast of 165.

"Our expectation for the currency to weaken further is based on Pakistan's worsening terms of trade, tighter US monetary policy, alongside the flow of US dollars out of Pakistan and into Afghanistan," it said.

Rupee's decline continues, hits new low against dollar

The Pakistani rupee has been sliding steadily since May. It was at 170.50 to the dollar on Thursday, more than 10% weaker than its peak in May of 150.95.

Analysts say the rupee has been hit by consistently high demand for dollars due to the country's current account deficit while the Afghan situation is increasing pressure.

Pakistan's Stock Exchange also fell nearly 3% this week on fears that a bill moved in the US Senate seeking to impose sanctions on the Taliban that could potentially extend to Pakistan.

Over the long term, tightening US monetary policy alongside higher structural inflation relative to the United States would weaken the rupee against the dollar, Fitch said.

A new low for Pakistan's rupee

It said, however, that the undervaluation of the Pakistani rupee on a real effective exchange rate basis would limit excessive weakness in the currency.