According to figures released by the State Bank of Pakistan (SBP) on Monday, Pakistan’s Real Effective Exchange Rate (REER) decreased sharply in January from 96.2 in December to 92.8.
The results showed that the REER decreased 4.4% yearly. The REER value decreased by 3.57% per month.
The Nominal Effective Exchange Rate Index (NEER), meanwhile, dropped from 46.24 in December 2022 to 43.56 in January 2023, a loss of 5.8% MoM.
On an annual basis, the NEER index fell by 20.46% YoY from a value of 54.77 in January 2022.
If the REER is less than 100, the country’s exports are priced competitively even when imports are pricey. A REER around 100, in the opinion of experts, means that the currency does not favour either imports or export competitiveness.
The SBP cautions against assuming that the currency’s equilibrium value is equal to 100 on the REER index. The REER’s deviation from 100, according to the central bank, “simply represents changes compared to its average value in 2010 and is unrelated to its equilibrium value,” according to an explanatory note on the topic.
Experts ascribed the situation to the significant devaluation of the rupee against the US dollar during the month of January, which was brought on by the government’s decision to allow the currency rate to float.
The inflation rate rose from 24.5% in December to 27.6% in January during this period.
Industry experts assert that the decrease in REER value has made Pakistan’s exports more competitive.