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 significant increase as it clocked in at 98.6 in October 2023, up from 91.7 in September 2023, data released by the State Bank of Pakistan (SBP) on Monday showed.

A REER below 100 means the country’s exports are competitive, while imports are expensive. Therefore, an increase indicates a drop in trade competitiveness. The situation reverses when REER stands above 100 on the index.

As per latest data by the SBP on Monday, the REER increased 7.51% month-on-month (MoM) in October 2023.

When compared with October 2022, the REER value declined 2.9%, when it had stood at 101.57.

Expert speaks about PKR’s real effective exchange rate

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.

Meanwhile, the Nominal Effective Exchange Rate Index (NEER) increased 6.5% MoM in October 2023 to a provisional value of 39.18 from 36.79 in September 2023.

Pakistan’s current account deficit clocks in at $74m in October

On a yearly basis, the NEER index fell by 21.46% from the value of 49.89 in October 2022.

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.