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 marginal decline as it clocked in at 98.2 in November 2023, down from 98.5 in October 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, a decrease indicates an improvement 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 0.34% month-on-month (MoM) in November 2023.

When compared with November 2022, the REER value declined 2.1%, when it had stood at 100.3.

Pakistan’s REER index jumps 7.5% MoM in October, now stands at 98.6

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) decreased by 3% MoM in November 2023 to a provisional value of 37.99 from 39.18 in October 2023.

On a yearly basis, the NEER index fell by 22.2% from the value of 48.86 in November 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.