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Markets

Pakistan’s REER index increases further to 102.2 in February 2024

  • This is the highest level since May 2021, says brokerage house AHL
Published March 19, 2024

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 further increase as it clocked in at 102.2 in February 2024, up from 101.7 in January 2024, data released by the State Bank of Pakistan (SBP) on Tuesday 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.

As per latest data by the SBP on Tuesday, the REER increased 0.41% month-on-month (MoM) in February 2024.

Pakistan’s REER index inches up in December, stands at 98.9

When compared with February 2023, the REER value increased 18.15%, when it had stood at 86.5.

The February 2024’s REER number is the highest since May 2021, brokerage house Arif Habib Limited said.

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.

Pakistan’s REER index dips in November, now stands at 98.2

Meanwhile, the Nominal Effective Exchange Rate Index (NEER) increased by 0.99% MoM in February 2024 to a provisional value of 38.79 from 38.41 in January 2024.

On a yearly basis, the NEER index fell by 1.27% from the value of 39.3 in February 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.

Comments

200 characters
Az_Iz Mar 19, 2024 09:15pm
A few days ago , vice chairman of Pakistan textile council, had written an opinion piece, in this paper, wrongly stating that the REER to be 109.
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Haseeb Toor Mar 19, 2024 10:08pm
That means , Pakistan would have to devalue its currency , to get the last tranche of $3b Stand By Agreement , finalised.
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Haseeb Toor Mar 19, 2024 10:10pm
@Az_Iz, Yes brother , i also read. But that may be clerical mistake. What he meant was that REER is above 100, indicating uncompetitive exports.. No matter if it is 101 or 109. Both are above 100.
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Az_Iz Mar 19, 2024 11:54pm
@Haseeb Toor, the chart says REER was well below 100,most of last year.Some months around 85.That did not boost exports.There are multiple factors at play.Cannot pick & choose data.
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Az_Iz Mar 20, 2024 12:09am
@Haseeb Toor,REER fluctuates all the time.All of last year it was below 100,sometimes touching 85.If it is a problem now,then it was an advantage then.Lag between contract & shipping,applies eitherway
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Az_Iz Mar 20, 2024 12:12am
@Haseeb Toor,REER fluctuates all the time, and should even out.If it is heading north of 100 now,it was well south of 100 all of last year.No complaints then,but only now.
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