Export competitiveness increases as REER falls

Real effective exchange rate drops below 100; gold continues to eclipse record

KARACHI:

Pakistan's real effective exchange rate (REER) – the value of local currency compared to a basket of currencies of trading partners – depreciated 1.48 percentage points to 98.65 points in September, reflecting an improvement in the country's export competitiveness.

According to the State Bank of Pakistan's (SBP) data, the REER index had been at 100.13 points in August 2024.

The latest reading comes on the back of softening inflation in the country and globally, and partly due to a stable Pakistani rupee compared to the currencies of its trading partners.

Any REER reading below 100 is good for countries like Pakistan, which usually runs a current account deficit, as it props up exports. However, REER levels above 100 make imports cheaper, putting pressure on the country's foreign exchange reserves.

The rupee on Monday depreciated Rs0.08 to Rs277.69 against the US dollar in the inter-bank market, where a two-day winning streak came to a halt.

The depreciation was linked with a slightly higher demand for the greenback in inter-bank dealings. Otherwise, the foreign currency supply has remained in surplus compared to its demand for imports and repaying foreign debt.

This is evident from a $2 billion boost to the foreign exchange reserves over a period of three months as they now stand above $11 billion. Moreover, the central bank reported a current account surplus of $119 million for September.

Market talk suggests the rupee will continue to remain stable, as has been seen over the past six months. Finance Minister Muhammad Aurangzeb has reached Washington to attend annual meetings of the International Monetary Fund (IMF) and the World Bank as well as meet their officials on sidelines. He is expected to request a climate fund of $1-2 billion for Pakistan.

Gold's record-breaking spree

Meanwhile, gold hit a new peak at Rs282,300 per tola (31.10 grams) in line with the global trend, maintaining its record-breaking spree for the fifth consecutive working day on Monday.

With a fresh rise of Rs500, the precious metal has gained a total of Rs6,300 in the past five days, according to the All Pakistan Saraf Gems and Jewellers Association.

In the international market, bullion rose $5 to a new record high of $2,726 per ounce (31.10 grams). It has cumulatively gained $73 over a period of five days, the association reported.

An active member of the association, Abdullah Abdul Razzaq, said the escalation in Middle Eastern tensions continued to trigger extensive buying of the safe-haven asset.

Besides, he added, the upcoming presidential election in the US and Fed rate cut also supported the rally in the global commodities market.