The Real Effective Exchange Rate (REER) of Pakistan, a measure of the value of a currency against a weighted average of several foreign currencies, decreased to 97.4 in August 2021 compared to 99.4 recorded in July 2021, said the State Bank of Pakistan (SBP) on Friday.
The REER is down 2.1% on a monthly basis and 5.4% from its recent peak in April 2021. Meanwhile, the REER index increased 6.1% in August 2021 against the value of 91.79 in August 2020.
On the other hand, the Nominal Effective Exchange rate Index (NEER) decreased by 2.58% in August to a provisional value of 57.81 from the revised value of 59.34 in July.
On a yearly basis, the NEER Index has increased marginally by 0.47%.
A REER below 100 means the country’s exports are competitive, while imports are expensive. The situation reverses when REER stands above 100 on the index.
As per the International Monetary Fund (IMF), the decrease in REER implies that exports have become cheaper and imports more expensive; therefore, a decrease indicates a gain in trade competitiveness.
According to an explanatory SBP video, REER is an index number that is free from any measuring unit and is calculated with reference to a particular year called the base year which is arbitrary and subject to change over time.
“Currently, the SBP is using (currencies’) weight of 37 major trading partners and competitors of Pakistan for REER calculation. These weights represent not only bilateral trade volumes but also a competition in the third markets,” stated SBP in the video.
Pakistan’s current account deficit (CAD) increased to $1.48 billion in August 21, a massive 81% month-on-month increase from $0.814 billion.
Pakistan's exports during the month of August stood at $2.88 billion, posting a yearly growth of 55%, as compared to $1.86 billion exports recorded in the same month of the previous year. On a month-on-month basis, Pakistan’s total exports inched up by 6% in August 2021 compared to $2.73 billion recorded in the month of July.