Pakistan’s real effective exchange rate (REER) rose to 94.3 in August from 93.2 in July, according to data released by the State Bank of Pakistan (SBP) on Friday.
A REER below 100 means the country’s exports are competitive, while imports are expensive. The rupee closed around the 218-219 level in the interbank market at the end of August before depreciating massively in September. It only started to appreciate last Friday.
According to the latest data, the RRSP has increased by 1% on a monthly basis. However, it remained down 8% from its April 2021 peak, when it stood at 102.95.
The SBP attributed the increase in the value of the REER to higher inflation in Pakistan compared to trading partners.
Pakistan’s REER drops to 93.2 in July
The rising inflation rate has become a major headache for policymakers as inflation based on the consumer price index (CPI) hit 27.3% on an annual basis (YoY) in August 2022, compared to 24.9% in the previous month and 8.4% in August 2021, the latest data released by the Pakistan Bureau of Statistics revealed.
According to the central bank, the REER is an index of the price of a basket of goods in a country compared to the price of the same basket in the main trading partners of that country.
“The prices of these baskets are expressed in the same currency using the nominal exchange rate with each trading partner. Each trading partner’s basket price is weighted by its share in total imports, exports or foreign trade,” the SBP website states.