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 decrease as it clocked in at 100.67 in May 2024, down from the revised 104.44 in April 2024, data released by the State Bank of Pakistan (SBP) on Friday 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.

As per latest data by the SBP on Friday, the REER decreased 3.62% month-on-month (MoM) in May 2024.

When compared with May 2023, the REER value increased 15.27%, when it stood at 87.33.

Highest in nearly 3 years: Pakistan’s REER index surges to 104.07 in March 2024

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 0.23% MoM in May 2024 to a provisional value of 39.20 from 39.30 in April 2024.

On a yearly basis, the NEER index rose by 6% from the value of 36.97 in May 2023.

Pakistan’s REER index increases further to 102.2 in February 2024

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.