An index measuring the Rupee's value against a trade-weighted basket of trading-partner currencies, adjusted for relative inflation — the standard gauge of whether the Rupee is overvalued or undervalued.
Source: SBP EasyData, monthly, Real Effective Exchange Rate index, base year 2010 = 100.
The Real Effective Exchange Rate (REER) adjusts Pakistan's nominal exchange rate against a basket of trading-partner currencies for differences in relative inflation rates, producing a single index number that reflects the Rupee's actual purchasing-power competitiveness — not just its face-value exchange rate.
The index is set to 100 in a chosen base year (2010, in SBP's series). A reading above 100 generally indicates the Rupee is overvalued in real terms relative to that base period — Pakistani exports are comparatively more expensive and imports comparatively cheaper than the base year's equilibrium would suggest. A reading below 100 indicates the opposite.
Because REER factors in inflation differentials, a country with persistently higher inflation than its trading partners can see its REER rise (indicating growing overvaluation) even while its nominal exchange rate stays flat or depreciates only modestly — nominal depreciation alone doesn't guarantee competitiveness is preserved.
The IMF and SBP both monitor REER as a key signal of currency misalignment — a persistently overvalued REER has historically preceded balance-of-payments pressure in Pakistan, as an uncompetitive Rupee discourages exports and encourages imports, widening the trade deficit.
REER is one of the analytical anchors used to judge whether a given nominal USD/PKR rate reflects genuine market value or whether further currency adjustment may be needed to restore external competitiveness — a recurring theme in Pakistan's IMF program discussions.