Pakistan’s Real Effective Exchange Rate Hits 91.6 in July
In July 2023, Pakistan’s Real Effective Exchange Rate (REER) soared 3.86 percentage points to reach 91.59.
The State Bank of Pakistan (SBP) just provided monthly data, and the trend shows a significant increase from the 87.73 reported in June 2023.
A REER of 100 or higher implies a decline in trade competitiveness, with export prices rising and import prices falling, whereas a REER of 100 or less shows that the country’s exports are competitive.
Read More: Massive Decline in Pakistani Rupee Value Against UAE Dirham
Pakistan’s current REER value of 91.59 indicates that exports appear to offer strong returns on paper, but local production is struggling to recover because imports of raw materials and machinery are still subpar despite the loosening of import restrictions. Nearly two months have passed since the federal government removed all import restrictions, but it will be some time until factories receive the proper volume to restart production.
A different aspect of the REER spectrum demonstrates how severely undervalued the Pakistani Rupee is. This implies that even while restricted exports are more competitive at the current REER level, the profits would still be small.
Volumetric translation of profits to PKR will only result in a reduction in realized earnings as the rupee’s value has been declining this month against the US dollar.
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