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 104.51 in April 2024, up from 104.09 in March 2024, data released by the State Bank of Pakistan (SBP) on Monday showed.
This is the highest level for the REER since September 2018 when it had stood at 106.63, reveals SBP data.
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 Friday, the REER increased 0.40% month-on-month (MoM) in April 2024.
Pakistan’s REER index increases further to 102.2 in February 2024
When compared with April 2023, the REER value increased 22.15%, when it had stood at 85.56.
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 surges to 101.7 in January
Meanwhile, the Nominal Effective Exchange Rate Index (NEER) increased by 1.11% MoM in April 2024 to a provisional value of 39.30 from 38.86 in March 2024.
On a yearly basis, the NEER index rose by 6.85% from the value of 36.78 in April 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.
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