Reserve Bank of India: Rupee Undervaluation Reaches 6% as REER Hits 12-Year Low
According to the latest Reserve Bank of India (RBI) bulletin, the Indian Rupee’s Real Effective Exchange Rate (REER) dropped to 94.05 in February, marking its lowest level since April 2014.
NEW DELHI — According to the latest Reserve Bank of India (RBI) bulletin, the Indian Rupee’s Real Effective Exchange Rate (REER) dropped to 94.05 in February, marking its lowest level since April 2014. This decline indicates that the currency is now undervalued by approximately 6% against a basket of 40 major trading currencies.
The RBI attributed this shift to nominal depreciation and India's relatively lower inflation compared to its global trading partners. While a REER below 100 typically boosts export competitiveness, it also signals underlying currency pressures.
Economic Indicators
- REER Level: 94.05 (Lowest in nearly 12 years).
- Undervaluation: Approximately 6% based on trade-weighted metrics.
- Monthly Trend: Third consecutive month of decline from January's 94.82.
- Market Contrast: Despite REER weakness, the Rupee gained over 1% against the US Dollar in February, supported by positive trade sentiments.
Strategic Impact
Policymakers track the REER closely as it dictates India's trade dynamics and capital flows. A sustained undervaluation may provide a competitive edge to Indian exporters in global markets, though the central bank remains vigilant regarding potential external sector imbalances driven by global volatility.