Pakistan’s Real Effective Exchange Rate (REER) saw a significant increase in October, as it clocked in at 100.4 compared to 90.7 in September, showed data released by the State Bank of Pakistan (SBP) on Wednesday.
As per the data, the REER increased by 10.63% on a yearly basis. This is the highest REER value since May 2021, when it stood at 102.2.
A REER below 100 means the country’s exports are competitive, while imports are expensive. Experts say that a REER close to 100 means that the currency does not favour export competitiveness or imports.
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.
Experts attributed the development to rupee’s recent appreciation against the US dollar and high inflation rate.
“Rupee recovered significantly in October and inflation rate continued to remain high, staying above 25%, which drove REER upwards,” Samiullah Tariq, Head of Research at Pak-Kuwait Investment Company told Business Recorder
The market expert shared that the increase in REER value makes Pakistan’s exports less competitive.
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.