Pakistan’s real effective exchange rate (REER) index depreciated to 85.6 in March 2023 as compared to 86.5 in February 2023, reported the State Bank of Pakistan (SBP) on Wednesday.
As per data released by the central bank, the REER decreased by 1% on a yearly basis. On a monthly basis, the REER value declined by 12.1%.
Meanwhile, the Nominal Effective Exchange rate Index (NEER) declined by 4.36% MoM in March 2023 to a provisional value of 37.58 from 39.29 in February 2023.
REER Index falls to 86.45 in Feb
On a yearly basis, the NEER index fell by 32.1% YoY from the value of 55.34 in March 2022.
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.
Pakistan’s REER index falls to 92.8 in January
Market experts say the decrease in REER value makes Pakistan’s exports more 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.
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