March 19, 2024 (MLN): Pak Rupee's Real Effective Exchange Rate Index (REER) increased by 0.41% MoM in February 2024 to a provisional value of 102.17 from the revised value of 101.75 in January 2024.

According to data published by the State Bank of Pakistan (SBP), the REER index has increased by 18.13% YoY compared to February 2023.

To note, this is the highest level since May 2021.

Similarly, the Nominal Effective Exchange Rate Index (NEER) increased by 0.99% in February to a provisional value of 38.79 from the revised value of 38.41 in January. On a yearly basis, the NEER Index has decreased by 1.27%.

PKR closed February at 279.11 against the USD showing an appreciation of 0.14% compared to its value in January 2024. While compared to February 2023 PKR has depreciated by 6.31%.

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.

An increase in REER implies that exports become more expensive and imports become cheaper; therefore, this increase indicates a decline in trade competitiveness.

The price of each trading partner's basket is weighted by its share in imports, exports, or total foreign trade.

A REER index of 100 should not be misinterpreted as denoting the equilibrium value of the currency. 100 merely represents the value of the currency at a chosen point in time (in this case the average value of the currency in 2010).

Therefore, the movement of the REER away from 100 simply reflects changes relative to its average value in 2010 and is unrelated to its equilibrium value.

While NEER is an index of the bilateral nominal exchange rates of one country relative to its major trading partners or selected basket of currencies.

The bilateral nominal exchange rate index with each trading partner is weighted by that country’s share in imports, exports, or total foreign trade.

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Posted on: 2024-03-19T18:23:27+05:00