REER index depreciates to 97.8 in May

KARACHI: Pakistan’s real effective exchange rate (REER) fell to 97.8 in May, down from 99.3 in the previous month, data from the State Bank of Pakistan (SBP) showed on Tuesday.

Both the Pakistani rupee’s depreciation and lower inflation compared to trading partners have contributed to the decline in the REER index in recent months, according to Optimus Capital Management in a brief note.

REER shows the competitiveness of the local currency against its trading partners.The rupee continued to weaken, closing at 283.41 per dollar in the interbank market, compared with Monday’s close of 283.17. In the open market, the rupee fell to 285.4, down from 284.34 in the previous trading session.

Analysts said that the local currency was under pressure due to concerns about the impact of fluctuations in global commodity markets, exacerbated by the current conflict between Israel and Iran, on Pakistan’s inflation and external sector outlook.

“Investor sentiment remains cautious, particularly due to concerns over oil prices and their potential impact on the broader macroeconomic landscape. Interestingly, despite the geopolitical tensions, oil prices have remained relatively stable so far, with no significant spike witnessed,” said Chase Securities.