Pakistan’s REER Falls to 97.81 in May 2025

Real Effective Exchange Rate drops 1.51% month-on-month, reflecting potential support for external trade balance

by Zyke Network
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Pakistan’s Real Effective Exchange Rate (REER) dropped to 97.81 in May 2025, down from the revised value of 99.31 recorded in April, according to data released by the State Bank of Pakistan (SBP) on Tuesday. This 1.51% month-on-month decline marks a continued trend of currency depreciation in real terms, potentially enhancing Pakistan’s export competitiveness in global markets.

In year-on-year terms, the REER has fallen by nearly 3%, down from 100.69 in May 2024. The REER is a key indicator that measures the value of the rupee against a basket of major trading partner currencies, adjusted for inflation differentials.

Why the REER Matters

A REER value below 100 suggests that Pakistani goods are more competitively priced in international markets, offering potential support to the country’s export sector. Simultaneously, it also implies that imports become relatively more expensive, which can discourage import growth and help contain the trade deficit.

“A REER below 100 means our exports become cheaper for foreign buyers, which could help narrow the current account deficit,” said a senior economist based in Karachi.

However, the SBP cautions against viewing the 100-point benchmark as an “ideal” exchange rate level.

“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 clarified in its explanatory note.

NEER Also Drops in May

Alongside REER, the Nominal Effective Exchange Rate (NEER)—which captures the rupee’s unadjusted exchange rate movement against a trade-weighted basket—fell 1.19% month-on-month to a provisional value of 37.66 in May 2025, compared to 38.12 in April.

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On a yearly basis, NEER has dropped by 3.92%, down from 39.20 in May 2024. This indicates a broad-based weakening of the Pakistani rupee in nominal terms, reflecting both domestic inflation and exchange rate adjustments.

REER and the Economic Outlook

The weakening REER comes at a time when Pakistan is striving to maintain external account stability. While a weaker REER can boost export earnings, it may also have implications for imported inflation, especially in essential goods such as energy, machinery, and food items.

Nonetheless, when viewed alongside workers’ remittances—which rose over 13% in May—and an overall current account surplus of $1.81 billion over the first 11 months of FY25, the latest REER trend appears to reinforce the policy direction toward export-led growth.

What Is REER?

The Real Effective Exchange Rate is a price index that measures the value of a country’s currency against a basket of foreign currencies, adjusted for inflation. 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.”

The central bank uses trade-weighted averages to calculate the index, considering the importance of each partner in Pakistan’s overall import and export trade.

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