Key Takeaways
- Pakistan’s Real Effective Exchange Rate (REER) reached a seven-year high in June 2026.
- A REER above 100 indicates the rupee is overvalued, making exports less competitive.
- Overvalued currency reduces export competitiveness and could widen external imbalances.
Pakistan’s real effective exchange rate (REER) hit a seven-year high in June 2026, reaching 106.44 from 106.08 the previous month. This marks a significant overvaluation of the rupee against major trading partners' currencies.
According to Topline Securities, a REER above 100 suggests that Pakistan’s currency is overvalued in real terms relative to its trading partners. This overvaluation makes Pakistani goods more expensive for foreign buyers and less competitive in international markets.
The rising REER has been attributed to macroeconomic stabilization efforts since early 2024, which have helped ease inflation differentials and maintain a relatively stable exchange rate. However, this trend is now posing challenges for the export sector.
An overvalued rupee reduces the price competitiveness of exports in international markets, while imports become cheaper for domestic buyers. This can lead to reduced demand for Pakistani goods abroad and potentially widen external imbalances if not addressed.
While global demand, productivity, and trade policies also influence export growth, the persistent high REER is a significant factor. Exporters are now facing increased pressure as their products struggle to compete in foreign markets due to higher prices.
The overvaluation of the rupee has implications for Pakistan’s economic stability. A weaker currency could help boost exports by making them more competitive internationally. However, policymakers must balance this with the need to maintain a stable exchange rate and support domestic industries.
Experts warn that if left unchecked, the overvalued rupee could exacerbate existing trade imbalances and hinder export growth. The government may need to consider measures such as adjusting interest rates or intervening in the foreign exchange market to address these issues.
