Pakistan’s REER Keeps Rising With Exports Under Pressure

Pakistan's currency, the rupee, has continued to become more expensive against the currencies of its major trading partners, leading to concerns over the competitiveness of its exports. According to the latest data from the State Bank of Pakistan, Pakistan's Real Effective Exchange Rate (REER) increased by just 0.02 percent month over month in August, remaining above the level of 107.9.

This REER figure has been on an upward trajectory in recent months, having risen by 4 percentage points since February, when it was recorded at 103.11. An REER reading above 100 suggests that the domestic currency is relatively stronger compared to the currencies of its trading partners, taking inflation into account. While a stronger rupee can make imports cheaper, it can also make Pakistani exports more expensive for foreign buyers, potentially reducing their competitiveness.

Simultaneously, the overvalued rupee can make imports relatively cheaper for domestic consumers. However, a persistently high REER can exert pressure on export competitiveness, although export performance is also affected by factors such as global demand, productivity, production costs, and trade policies.