Pakistan’s Real Effective Exchange Rate Declines, Rupee Remains Overvalued Amid Economic Pressures

Pakistan’s Real Effective Exchange Rate (REER) declined slightly to 103.3 in January 2026 from 103.6 in December 2025, according to the State Bank of Pakistan. The REER reflects the value of the Pakistani rupee against a basket of major trading partners, adjusted for inflation differences. A reading above 100 indicates a relatively overvalued currency, while a lower reading suggests improved external competitiveness.

Although the REER has decreased, it remains above the long-term average, signaling that the rupee still faces mild overvaluation pressures compared to peer economies. Analysts expect the Pakistani rupee to continue strengthening moderately against the US dollar, with the currency closing at 279.6 per dollar.