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 marginal increase as it clocked in at 98.86 in December 2023, up from 98.27 in November 2023, data released by the State Bank of Pakistan (SBP) on Wednesday showed.
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.
The increase indicates a drop in trade competitiveness.
As per latest data by the SBP on Wednesday, the REER increased 0.6% month-on-month (MoM) in December 2023.
When compared with December 2022, the REER value increased 1.4%, when it had stood at 97.47.
The SBP says a REER index of 100 should not be misinterpreted as denoting the equilibrium value of the currency.
Pakistan’s REER index dips in November, now stands at 98.2
“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 0.12% MoM in December 2023 to a provisional value of 37.94 from 37.98 in November 2023.
On a yearly basis, the NEER index fell by 20% from the value of 47.26 in December 2022.
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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