Qudsia Bano

The Real Effective Exchange Rate (REER) index appreciated in July 2025, reaching 98.6 compared to 96.6 in June 2025, according to figures released by the State Bank of Pakistan (SBP). This represents a month-on-month increase of 2.02 percent, marking the first notable rise after several months of decline.

Earlier in the year, the REER had been under pressure, dropping from 102.25 in February to 101.55 in March, 99.30 in April, 97.79 in May, and 96.63 in June. The month-on-month changes showed consistent depreciation, with declines of 1.74 percent in March, 0.68 percent in April, 2.21 percent in May, and 1.52 percent in June. The July recovery, therefore, indicates a reversal of the weakening trend that persisted through the first half of 2025.

The REER, based on the 2010 index year, measures the value of the rupee against a basket of major trading partners’ currencies, adjusted for inflation. A reading above 100 signals overvaluation, while a reading below 100 reflects undervaluation. At 98.6, the rupee remains slightly undervalued but has moved closer to equilibrium compared to the previous month’s level.

Alongside the REER improvement, the current account also showed some stabilization. Pakistan recorded a current account deficit of $254 million in July 2025, compared to a deficit of $348 million in July 2024. On a sequential basis, however, the balance turned negative after posting a surplus of $335 million in June 2025. Recent data highlights considerable fluctuations, with a deficit of $80 million in February, a surplus of $1.28 billion in March, a surplus of $24 million in April, and a deficit of $84 million in May before turning positive in June.

The July figures suggest that while the rupee’s external competitiveness has improved in relative terms, pressures on the current account persist. Analysts note that sustaining stability will depend on maintaining export growth, managing imports, and ensuring consistent foreign exchange inflows in the coming months.

Credit: INP-WealthPk