Pakistan’s Real Effective Exchange Rate (REER) dropped to 99.42 in April 2025, down from a revised 101.55 in March, according to data released by the State Bank of Pakistan (SBP). This marks a 2.1% month-on-month (MoM) depreciation, signaling improved export competitiveness.
On a year-on-year (YoY) basis, REER dropped 4.8%, from 104.44 in April 2024.
What Does a REER Below 100 Mean?
REER measures the value of the Pakistani rupee against a weighted basket of currencies from its major trading partners, adjusted for inflation. A REER:
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Above 100: Suggests the rupee is overvalued, making exports less competitive and imports cheaper.
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Below 100: Implies the rupee is undervalued, enhancing export competitiveness and discouraging imports.
With April’s REER dipping below 100, Pakistani exports are likely to become more attractive in global markets, which could support the trade balance in the coming months.
SBP’s Clarification
The SBP cautions that a REER index of 100 should not be mistaken as the “fair value” of the currency. It simply reflects movements relative to the 2010 base year and does not imply an optimal exchange rate.
“Movement of the REER away from 100 simply reflects changes relative to its average value in 2010 and is unrelated to its equilibrium value,” the SBP stated.
Nominal Effective Exchange Rate (NEER) Also Drops
In addition to REER, the Nominal Effective Exchange Rate (NEER) — which tracks the rupee’s performance without adjusting for inflation — also declined:
| Metric | April 2025 | March 2025 (Revised) | MoM Change | YoY Change (vs April 2024) |
|---|---|---|---|---|
| REER | 99.42 | 101.55 | -2.1% | -4.8% |
| NEER | 38.12 | 38.53 | -1.06% | -2.97% |
The fall in NEER and REER indicates a broad weakening of the Pakistani rupee against its trading partners, which may have both positive trade implications and inflationary risks if import costs rise.
Why It Matters
A lower REER can stimulate export growth, a critical need for Pakistan’s struggling economy. However, the trade-off could be higher imported inflation, especially for energy and food items. The rupee’s competitiveness must be managed carefully to maintain external sector stability.
What is REER in Simple Terms?
According to the SBP:
“REER is an index of the price of a basket of goods in one country relative to the price of the same basket in that country’s major trading partners.”
Each trading partner’s basket is weighted by its share in Pakistan’s imports and exports, adjusted using nominal exchange rates.
