Pakistan’s Real Effective Exchange Rate (REER) saw an increase in May, as it clocked in at 87.1 as compared to 85.6 in April, showed data released by the State Bank of Pakistan (SBP) late on Tuesday.
As per the data, the REER decreased by 7.8% on a yearly basis. On a monthly basis, the REER value increased by 1.85%.
Meanwhile, the Nominal Effective Exchange rate Index (NEER) inched up 0.53% MoM in May 2023 to a provisional value of 36.98 from 36.78 in April 2023.
On a yearly basis, the NEER index fell by 30.56% YoY from the value of 53.25 in May 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.
Market experts say the increase in REER value makes Pakistan’s exports less 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.