November 2023 saw a month-over-month decrease of 0.34% in the Real Effective Exchange Rate (REER) Index for the Pak Rupee, according to a recent update from the State Bank of Pakistan (SBP).
With a 2.12% decline from November’s metrics, the provisional value is now 98.18, down from the revised October 2023 value of 98.52.
At the same time, the Nominal Effective Exchange Rate (NEER) Index fell 3.03% in November, ending up at a provisional 37.99, which is 3.03 percent less than the revised October value of 39.18.
The NEER Index showed a significant 22.26% decline annually.
With a closing value of 285.3 against the US dollar in November, the Pak Rupee saw a slight depreciation of 0.07% from its October 2023 value.
But when compared to November 2022, there was a more noticeable depreciation of 21.49%.
REER AND NEER EXPLAINATION
A vital indicator of a currency’s value relative to a weighted average of different foreign currencies is its relative exchange rate, or REER.
A rise in REER implies a decrease in trade competitiveness since it implies that imports are becoming less expensive and exports are becoming more expensive.
Each trading partner’s basket pricing is based on how much of its share of imports, exports, or overall foreign trade it accounts for.
It is important to remember that a REER index of 100 represents the value of the currency at a particular point in time (the average value in this case, 2010), not its equilibrium value.
Deviations from 100 are not connected to the equilibrium value; rather, they represent shifts in relation to the 2010 average value.
NEER
Conversely, the New Exchange Rate Eradication (NEER) measures a nation’s bilateral nominal exchange rates in relation to either a chosen currency basket or its main trading partners.
The weighted bilateral nominal exchange rate index of each trading partner is based on the share of that country’s imports, exports, or total foreign trade.
With consideration for the potential effects on Pakistan’s trade competitiveness and economic stability, observers and stakeholders are closely watching how these indices are evolving as the nation manages these shifts in its exchange rate dynamics.
