Pakistan’s real effective exchange rate (REER), a measure of the value of a currency against a weighted average of several foreign currencies, rose further to 102.92 in November 2024, up from 100.78 (revised) in October 2024, according to data published by the State Bank. of Pakistan (SBP) on Tuesday.
A REER greater than 100 means that the country’s exports are not competitive, while imports are cheaper. The situation is reversed when the REER is below 100 in the index.
According to the latest SBP data on Tuesday, the REER appreciated by 2.13% month-on-month (MoM) in November 2024.
Compared to November 2023, the REER value increased by 4.73%, reaching 98.28.
The SBP says that a REER index of 100 should not be misinterpreted as denoting the equilibrium value of the currency.
“The movement of the REER from 100 simply reflects changes relative to its average value in 2010 and is not related to its equilibrium value,” the central bank said in an explanatory note on the subject.
Meanwhile, the Nominal Effective Exchange Rate (NEER) Index rose by 1.61% MoM in November 2024 to a provisional value of 38.89 from 38.27 (revised) in October 2024.
On an annual basis, the NEER index increased by 2.37% from the value of 37.99 in October 2023.
What is the REER?
According to the central bank, the REER is an index of the price of a basket of goods in a country relative to the price of the same basket in that country’s main trading partners.
“The prices of these baskets are expressed in the same currency using the nominal exchange rate with each trading partner. The basket price of each trading partner is weighted according to its share in imports, exports or total foreign trade,” the SBP website says.
