In December, Pakistan’s Real Effective Exchange Rate (REER) dropped significantly from 98.9 in November to 96.2 in December, according to data issued by the State Bank of Pakistan (SBP) on Wednesday.
According to the data, the REER fell 0.6% per year. The monthly decrease in the REER value was 2.74%.
Meanwhile, the Nominal Effective Exchange rate Index (NEER) declined by 3.15% MoM in December 2022 to a provisional value of 46.24 from 47.75 in November 2022.
The NEER index decreased 15.18% YoY from a value of 54.52 in December 2021 on an annual basis.
A REER below 100 indicates that while imports are expensive, the country’s exports are price-competitive. According to experts, a REER close to 100 indicates that the currency does neither favor imports nor export competitiveness.
The SBP warns against interpreting a REER index of 100 as the currency’s equilibrium value. The central bank stated in an explanatory note on the subject that the REER’s departure from 100 “only reflects changes relative to its average value in 2010 and is unrelated to its equilibrium value.”
The weakening of the rupee against the US dollar during the month of December was blamed by experts, while the inflation rate sort of stabilised at 24.5% in December as opposed to 23.8% in November.
Market analysts claim that Pakistan’s exports are more competitive as a result of the decline in REER value.
