Pakistan’s Real Effective Exchange Rate (REER), a measure of the value of a currency against a weighted average of several foreign currencies, witnessed a decrease as it clocked in at 100.16 in August 2024, down from 101.50 in July 2024, data released by the State Bank of Pakistan (SBP) on Wednesday showed.
A REER above 100 means the country’s exports are uncompetitive, while imports are cheaper. The situation reverses when REER stands below 100 on the index.
As per SBP’s latest data on Wednesday, the REER depreciated 1.32% month-on-month (MoM) in August 2024.
When compared with August 2023, the REER value increased by 11.24%, when it stood at 90.04.
The SBP says a REER index of 100 should not be misinterpreted as denoting the equilibrium value of the currency.
“Movement of the REER away from 100 simply reflects changes relative to its average value in 2010 and is unrelated to its equilibrium value,” the central bank said in an explanatory note on the topic.
Meanwhile, the Nominal Effective Exchange Rate Index (NEER) decreased by 1.46% MoM in August 2024 to a provisional value of 38.15 from 38.72 in July 2024.
On a yearly basis, the NEER index rose by 3.89% from the value of 36.72 in August 2023.
What is REER?
As per the central bank, REER is an index of the price of a basket of goods in one country relative to the price of the same basket in that country’s major trading partners.
“The prices of these baskets expressed in the same currency using the nominal exchange rate with each trading partner. The price of each trading partner’s basket is weighted by its share in imports, exports, or total foreign trade,” the SBP website says.
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