Pakistan’s Real Effective Exchange Rate (REER) increased by 1.1 percent to 94.3 in August 2022.
According to the latest monthly data released by the State Bank of Pakistan (SBP), the trend indicates a slight jump from 93.2 recorded in July 2022.
The REER index appreciated to 94.3 in August compared to 93.2 in July, owing to higher inflation in Pakistan compared to trading partners. For details see https://t.co/0pjvdnFg8Y https://t.co/Ird7FDRhJ8 pic.twitter.com/0e7cnTd7Wd
— SBP (@StateBank_Pak) September 30, 2022
The REER is a weighted average of the value of a country’s currency relative to a basket or index of other major currencies. It is not the same as the spot exchange rate, which is the current amount needed to exchange one currency for another on the earliest possible value date. While the spot exchange rate represents the current market price, the REER represents the value of a currency in relation to its key trading outliers.
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.
A REER below 100 means the country’s exports are competitive, while imports are expensive. Therefore, a decrease indicates a gain in trade competitiveness.
At 94.3, Pakistan’s current REER value suggests that the Pakistani Rupee (PKR) is still undervalued.
