In March 2024, Pakistan’s Real Effective Exchange Rate Index (REER) saw a notable increase of 1.93% month-on-month, reaching a provisional value of 104.07, up from the revised value of 102.1 in February 2024. Year-on-year, the REER index surged by 21.57% compared to March 2023, according to data released by the State Bank of Pakistan (SBP).
Conversely, the Nominal Effective Exchange Rate Index (NEER) experienced a more modest increase of 0.18% in March, reaching a provisional value of 38.86 from the revised value of 38.79 in February. Year-on-year, the NEER index showed a rise of 3.41%.
The Pakistani Rupee (PKR) closed March at 277.95 against the US Dollar (USD), indicating an appreciation of 0.42% compared to its value in February 2024. Year-on-year, PKR appreciated by 2.1% compared to March 2023.
REER and NEER are important indicators of a country’s exchange rate competitiveness. An increase in REER suggests that exports become more expensive and imports become cheaper, potentially leading to a decline in trade competitiveness. This movement is crucial for policymakers to monitor as it impacts a country’s trade balance.
It’s important to note that while a REER index of 100 is often used as a reference point, it does not denote the equilibrium value of the currency. Instead, it represents the currency’s value at a chosen point in time, in this case, the average value in 2010. Therefore, movements away from 100 reflect changes relative to the average value in 2010, rather than indicating an equilibrium value.
Similarly, NEER provides insights into bilateral nominal exchange rates with trading partners. Each trading partner’s bilateral nominal exchange rate is weighted by that country’s share in imports, exports, or total foreign trade.
