Pakistan's Real Effective Exchange Rate (REER) increased to 94.3 in August compared to 93.2 in July, data released by the State Bank of Pakistan (SBP) showed on Friday.

A REER below 100 means the country’s exports are competitive, while imports are expensive. The rupee closed around the 218-219 level in the inter-bank market at the end of August before depreciating massively in September. It has only begun to appreciate since last Friday.

As per the latest data, the REER increased by 1% on a monthly basis. However, it remained 8% down from its peak in April 2021, when it stood at 102.95.

The SBP attributed the increase in REER value to higher inflation in Pakistan compared to trading partners.

Pakistan’s REER falls to 93.2 in July

A rising inflation rate has become a major headache for policymakers, as the Consumer Price Index (CPI)-based inflation hit 27.3% on a year-on-year (YoY) basis in August 2022, compared to 24.9% in the previous month and 8.4% in August 2021, revealed latest data released by Pakistan Bureau of Statistics.

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.