Pakistan’s Real Effective Exchange Rate (REER) has increased by 0.9 percent to 97.91 in February 2022.
According to the latest monthly data published by the State Bank of Pakistan (SBP), the growth indicates a marginal hike from 97.04 recorded in January 2022.
The REER index was recorded at 97.91 in Feb22, compared to 97.04 in Jan22. For details, see https://t.co/Ird7FDRhJ8 pic.twitter.com/Jynfl4LtSU
— SBP (@StateBank_Pak) March 24, 2022
The REER is the weighted average of a country’s currency compared to an index or basket of other major currencies. It differs from the spot exchange rate which is the current amount to exchange one currency for another on the earliest possible value date. While the spot exchange rate depicts the current market price, the REER is an indicator of the value of a currency compared to its major trading partners.
An increase in a nation’s REER is an indication that its exports are becoming more expensive and its imports are becoming cheaper. It is losing its trade competitiveness.
The REER can be used to assess whether a currency is overvalued or undervalued. If it is greater than 100, it illustrates that the value of the currency is overvalued, while being less than 100 means that it is undervalued.
At 97.91, Pakistan’s current REER value suggests that the Pakistani Rupee (PKR) is still undervalued.
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