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Pakistan’s Real Effective Exchange Rate (REER) has declined to 90.94 in September compared to 94.38 in August, data released by the State Bank of Pakistan (SBP) showed on Sunday.
As per the latest data, the REER decreased by 3.65% on a monthly basis. The last time the REER was close to 100 was in June 2021.
The REER index depreciated to 90.9 in Sep 22 as compared to 94.4 in Aug 22. For details see https://t.co/0pjvdnFg8Y https://t.co/Ird7FDRhJ8 pic.twitter.com/AHvI8rjuIq
— SBP (@StateBank_Pak) October 30, 2022
A REER below 100 indicates that while imports are expensive, the country’s exports are price competitive. According to experts, a REER near 100 indicates a location where the currency does not benefit either imports or exports’ competitiveness.
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The SBP warns against interpreting a REER index of 100 as the currency’s equilibrium value. In an explanation note on the subject, it states that “movement of the REER away from 100 simply reflects changes relative to its average value in 2010 and is unrelated to its equilibrium value.”
Currently, the rupee is hovering around the 222 level in the inter-bank market, which Finance Minister Ishaq Dar says leaves room for appreciation. During September, the rupee saw wild swings that saw the currency move from 219 to near 240 before it pulled back to around the 228 level by the end of the month.
What is REER
According to the central bank, REER is an index that compares the cost of a given basket of goods in one nation to the cost of the same basket in the key trading partners of that nation.
“These baskets’ prices are stated in the same currency with each trading partner using the nominal exchange rate. According to the SBP website, the price of each trading partner’s basket is weighted according to its percentage of imports, exports, or overall international trade.
