Pakistan’s Real Effective Exchange Rate (REER), a measure of the value of a currency against a weighted average of several foreign currencies, increased to 103.7 in December 2024, up from 103.02 (revised) in November 2024, data released by the State Bank of Pakistan (SBP) on Friday showed.
This marks the highest REER since April 2024, when it stood at 104.4.
A REER above 100 means the country’s exports are uncompetitive, while imports are cheaper. The situation reverses when REER is below 100 on the index.
As per SBP’s latest data on Friday, the REER appreciated 0.7% month-on-month (MoM) in December 2024.
When compared with December 2023, the REER value increased by 4.9%, when it stood at 98.83.
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) increased by 0.7% MoM in December 2024 to a provisional value of 39.15 from 38.89 (revised) in November 2024.
On a yearly basis, the NEER index increased 3.2% from the value of 37.94 in December 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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