Real Effective Exchange Rate improves to 97.81 in May

Pakistan's Real Effective Exchange Rate (REER) index, a crucial indicator of trade competitiveness, improved to 97.81 in May 2025, according to a report released by the State Bank of Pakistan (SBP).

This represents a 1.5% drop from the previous month's figure of 99.30, according to AKD Securities.

The decrease in REER, which measures the value of a currency against the weighted average of several trade partner currencies, suggests that Pakistan's exports have become more competitive in the international market. An index value below 100 typically indicates the currency is undervalued, making the country's goods and services cheaper for foreign buyers.

"Both PKR depreciation and lower inflation vs trading partners have contributed to the decline in REER index in recent months," said Maaz Azam, Head of Research at Optimus Capital.

The Pakistani rupee weakened 0.37% against the US dollar, ending the month of May at an exchange rate of 282.02. This development is likely to be viewed favourably by exporters as a more competitive exchange rate can help boost sales and support the country's external account.

On Tuesday, the rupee weakened against the US dollar by 0.08% in the inter-bank market. By the end of trading, the local currency stood at 283.41, down 24 paisa compared to the previous close at 283.17.

Globally, the US dollar edged up, while most other currencies traded within narrow ranges as investors stayed cautious amid persistent Middle East tensions and upcoming central bank policy announcements.

Meanwhile, gold prices in Pakistan declined on Tuesday, mirroring a drop in the global market. In the domestic market, the price of gold per tola fell Rs1,000 to settle at Rs361,300. Likewise, the price of 10 grams of gold dipped Rs857 to Rs309,756, according to the All Pakistan Sarafa Gems and Jewellers Association (APSGJA).

Internationally, gold prices also moved lower, falling $16 to $3,398 per ounce (including a $20 premium), as reported by the APSGJA.

Interactive Commodities Director Adnan Agar stated that gold prices remained largely stable, with future movements depending on potential involvement of the US in the Iran-Israel conflict. He noted that if the US decided to intervene, gold prices could see a sharp increase; otherwise, the market was expected to remain steady.