February 19, 2024 (MLN): Pak Rupee's Real Effective Exchange Rate Index (REER) increased by 2.91% MoM in January 2023 to a provisional value of 101.7 from the revised value of 98.83 in December 2023.
According to data published by the State Bank of Pakistan (SBP), the REER index has increased by 8.24% compared to January 2023.
Similarly, the Nominal Effective Exchange Rate Index (NEER) increased by 1.24% in January to a provisional value of 38.41 from the revised value of 37.9414 in December. On a yearly basis, the NEER Index has decreased by 13.61%.
PKR closed January at 279.5 against the USD showing an appreciation of 0.84% compared to its value in December 2023. While compared to January 2023 PKR has depreciated by 4.16%.
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.
