Pakistan’s Real Effective Exchange Rate (REER) 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.
A REER below 100 means the country’s exports are competitive, while imports are expensive. Experts say a REER close to 100 suggests a place where the currency does not favour either exports’ competitiveness or imports.
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,” it says in an explanatory note on the topic.
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.
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.