Rupee index climbs to eight-year high, signalling overvaluation risk
Pakistan’s Real Effective Exchange Rate (REER) rose to 108.93 in September 2026, an eight-year high, data compiled by Topline Securities showed on Friday. The Pakistan rupee index has now stayed above its 10-year average of 102.26, a level that suggests the currency may be overvalued compared with those of its trading partners.
The index keeps climbing
The REER rose from 107.87 in August to 108.93 in September, continuing an upward trend that has pushed the index to its highest reading in eight years. The reading has remained consistently above the 10-year average of 102.26. A REER value above 100 indicates that the currency may be overvalued relative to the currencies of trading partners, after adjusting for price differences between countries.
What the Pakistan rupee index actually measures
REER is not the same as the market exchange rate. It measures a currency’s value against a basket of other currencies, adjusted for relative price levels, and it is used to judge changes in international price competitiveness. A rising index means the rupee is becoming more expensive in real terms against the currencies Pakistan trades with. For exporters, that is a problem: their goods get pricier for foreign buyers. For importers and consumers, it has the opposite effect, making imported goods relatively cheaper.
Why this matters for Pakistan’s trade balance
The timing is important. A rising real exchange rate tends to encourage imports and discourage exports, which is exactly what Pakistan’s latest external accounts show. The current account deficit widened to $874 million in the first quarter of FY2026-27 as imports rose 14 per cent while exports grew only 8 per cent. An overvalued rupee makes that imbalance harder to fix, because it gives foreign sellers a pricing edge in Pakistan’s market while Pakistani sellers lose ground abroad. That pressure is also visible in import-heavy categories, including used cars, where imports have surged and local automakers have raised concerns.
What it means for exporters and consumers
For Pakistani exporters, an overvalued rupee eats into margins. A textile exporter, for example, receives the same dollar price but converts it into fewer rupees at home, which squeezes profits and can force prices down to stay competitive. For consumers, the effect is quieter but real: relatively cheaper imports can keep some shop prices in check, but they also weaken domestic industry over time. Fuel is one area where households feel price moves directly, with petrol prices recorded at Rs398.96 per litre.
The central bank’s balancing act
State Bank reserves have been rising, with reserves recently edging up to $26.8 billion, which gives policymakers room to manage currency pressures. An eight-year high in the real exchange rate, however, raises the question of whether the rupee’s strength can last without hurting exports. Markets will be watching our USD to PKR forecast for October 2026 for signs of how the currency could adjust in the weeks ahead.
Frequently asked questions
What is Pakistan’s rupee index at now?
The Real Effective Exchange Rate stood at 108.93 in September 2026, up from 107.87 in August, an eight-year high.
What is the 10-year average?
The 10-year average is 102.26. The index has stayed above this level, which suggests possible overvaluation.
What does a REER above 100 mean?
A reading above 100 suggests the currency may be overvalued relative to trading partners’ currencies. REER measures a currency against a basket of others, adjusted for relative price levels, and indicates changes in international price competitiveness.
Where was this data reported?
The figures were reported by ProPakistani, citing data compiled by Topline Securities.
