Pakistan’s Real Effective Exchange Rate (REER), a measure of the value of a currency against a weighted average of several foreign currencies, witnessed an increase as it clocked in at 101.70 in January 2024, up from 98.83 in December 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. The situation reverses when REER stands above 100 on the index.

The recent increase indicates a drop in trade competitiveness.

As per latest data by the SBP on Monday, the REER increased 2.9% month-on-month (MoM) in January 2024.

When compared with January 2023, the REER value increased 8.23%, when it had stood at 93.96.

The January 2024’s REER number is the highest since May 2021, brokerage house Arif Habib Limited said.

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 inches up in December, stands at 98.9

Meanwhile, the Nominal Effective Exchange Rate Index (NEER) increased by 1.25% MoM in January 2024 to a provisional value of 38.41 from 37.94 in December 2023.

On a yearly basis, the NEER index fell by 13.60% from the value of 44.46 in January 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.