Exporters to get support as REER depreciates

Pakistan's REER falls to 100.16 in August, aiding exports, while the rupee gains Rs0.09 against the dollar.

KARACHI:

Pakistan's real effective exchange rate (REER) – the value of local currency as compared to the basket of currencies of trading partners – depreciated 1.26% to 100.16 in August 2024, providing support to exporters in competition with peers in regional and global markets.

According to the State Bank of Pakistan (SBP) data, the REER stood at 101.47 in July 2024.

On the other hand, Pakistani rupee appreciated Rs0.09 and closed at Rs278.04 against the US dollar in the inter-bank market on Wednesday. The local currency maintained its winning streak for the sixth successive working day. Despite some depreciation in REER, the global matrix has continued to move around its fair value in the range of 95-105 for the past one year. Earlier, it ranged between 85.6 and 94 over three quarters from January to September 2023.

The REER value of 100 is considered to be at equilibrium. Any reading below 100 makes exports competitive, which is termed good for countries like Pakistan that mostly runs a current account deficit. On the other hand, a REER reading above 100 makes the rupee overvalued, resulting in cheaper imports.

The local currency has stood stable in the range of Rs278-279 against the greenback for the past five and a half months. REER's depreciation is the result of a slowdown in inflation in the country as well as globally.

On a day-on-day basis, the rupee ticked up Rs0.09 after the central bank reported that Pakistan's current account returned to surplus in August after remaining in deficit for three months.