Fed Rate Hike May Pressure Rupee, But Oil Shock Poses Bigger Risk For Pakistan.

Pakistan’s rupee and external financing conditions could come under pressure following the US Federal Reserve’s latest interest-rate hike, but analysts said elevated oil prices pose a more immediate threat to the country’s external account and economy.

The Federal Reserve raised its benchmark interest rate by 25 basis points to 3.75%-4%, marking its first rate increase since 2023. The move also comes with a more restrictive outlook, with 16 of 18 Fed policymakers projecting at least one additional quarter-point increase by the end of 2026.

Waqas Ghani, Head of Research at JS Global, said the Fed hike could put pressure on the Pakistani rupee by tightening global financial conditions. Higher US interest rates can also increase the cost of dollar-denominated borrowing and make future external financing more expensive.

However, Pakistan’s immediate external financing position is relatively insulated because the country has already secured a $3 billion Eurobond issued in September, Ghani noted. This reduces the near-term need to access international capital markets at potentially higher borrowing costs.

Analysts said the larger concern remains the sharp rise in international oil prices. Pakistan is heavily dependent on imported energy, meaning sustained increases in crude prices can quickly raise the country’s import bill, widen pressure on the current account and increase inflationary risks.

Higher oil prices can also affect foreign-exchange reserves and the rupee through increased demand for dollars to finance energy imports. The impact could become more pronounced if disruptions in Middle Eastern energy supplies persist.

The Fed’s tightening also adds to global financial-market pressure because higher US yields can encourage investors to shift funds towards dollar-denominated assets. This can make financing more difficult for emerging markets and increase the cost of servicing existing external debt.

For Pakistan, the combination of tighter global monetary conditions and expensive energy therefore creates two separate pressures: higher global borrowing costs and a larger import bill. Recent analysis has similarly identified oil prices and geopolitical disruptions as key risks to Pakistan’s external and inflation outlook.

Market experts will now closely monitor oil prices, the rupee, foreign-exchange reserves and capital flows to assess how long the external pressures persist. The severity of the impact will depend largely on the duration of the energy shock and the Fed’s future policy path.