Pakistan's REER index surges to 92-month peak of 106.15
- Rebasing would help REER to give a fair currency value, a research house says
Pakistan's Real Effective Exchange Rate (REER) hit a 7.5-year high in May 2026, indicating an overvalued rupee. While this makes exports uncompetitive, analysts suggest strong dollar inflows mitigate concerns.
- Implications of an appreciated REER on trade competitiveness.
- Reasons why economic managers are not concerned about the high REER.
- Proposals to update the REER calculation's base year.
Pakistan’s real effective exchange rate (REER) – the value of rupee compared to basket of currencies of trading partner countries – hit over seven-and-half-year high at 106.15 points on the index in May 2026, according to the central bank and research houses on Wednesday.
The appreciated REER suggests the local currency has strengthened to overvalue compared to the trading partner currencies. Besides, this has made imports cheaper and export of the country uncompetitive.
- A REER above 100 means the country’s exports are uncompetitive, while imports are cheaper. The situation reverses when REER stands below 100 on the index.
AKD Securities Director Research Muhammad Awais Ashraf, however, argued otherwise. He said economic managers should not be worried about elevated REER, arguing “the supply of US dollar has remained higher compared to demand in the domestic economy amid strong inflows of foreign currencies into Pakistan”.
State Bank of Pakistan (SBP) reported REER appreciated 0.3% (or 35 basis points) in May from 105.80 points in the previous month of April 2026.
Arif Habib Limited added REER hit its “highest level seen since September 2018” in May 2026. It added REER appreciated 8.28% in the outgoing fiscal year to date.
The local currency closed at Rs278.27/$ in inter-bank market on Wednesday, as it has continued to inch up on a daily basis for about a year time.
Ashraf further said the strong inflows were visible with the country’s current account balance recorded in surplus at $459 million in May 2026.
“Besides, foreign exchange reserves [held by SBP] have continued to surge for quite a long time, hitting at over five-year high at $17.21 billion at present.”
The economic managers would have been worried about appreciation in REER index if demand for the US dollar had remained higher compared to supplies in the economy, he added.
Ashraf said REER calculation also took into account inflation readings in domestic economy and trading partner countries. Accordingly, the “REER index has appreciated because of higher inflation reading in Pakistan compared to trading partner countries in recent months,” he said.
Darson Securities CEO Malik Dilawaiz Ahmed said there was a need to change base-year for calculating a fair value of REER.
The index has continued to base on the year 2010.
The local currency has depreciated significantly to Rs287.27/$ on Wednesday compared around Rs100 in 2010, according to Ahmed. “The rebasing would help REER to give a fair currency value.”
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 are 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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