Export competitiveness increases as REER falls

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.