Pakistan’s Real Effective Exchange Rate Declines by Massive 2.4% in May

Pakistan’s Real Effective Exchange Rate (REER) has decreased by a massive 2.4 percent to 93.57 in May 2022. According to the latest monthly data published by the State Bank of Pakistan (SBP), the trend indicates a big fall from 95.85 recorded in April 2022. The REER is a weighted average of a country’s currency against a basket or index of other major currencies. It is not the same as the spot exchange rate, which is the current amount required to convert one currency for another on the earliest feasible value date. While the spot exchange rate represents the current market price, the REER indicates a currency’s worth in relation to its key trade partners. The REER can be used to assess whether a currency is overvalued or undervalued. If it is greater than 100, it illustrates that the value of the currency is overvalued, while being less than 100 means that it is undervalued. A REER below 100 means the country’s exports are competitive, while imports are expensive. Therefore, a decrease indicates a gain in trade competitiveness. At 93.57, Pakistan’s current REER value suggests that the Pakistani Rupee (PKR) is very much undervalued.