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RBI REERs flag an overvalued rupee

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The rupee has gained more than 4.5% in the last three months on the back of dollar inflows into domestic equity and debt markets. While a strong rupee should sit well with a net importer like India, a fast appreciation of the exchange rate is not desired.One of the measures of overvaluation of the rupee is the real effective exchange rate (REER) of the Reserve Bank of India (RBI). There are two REERs that RBI details in its data releases.One is derived from a basket of six currencies, while the other is from a basket of 36 currencies belonging to trading partner.Both REERs show that the rupee is overvalued by a huge margin. The six currencies-based REER puts the rupee's pvervaluation at 8% while the 36-currency one puts it at a massive 21% as of April.RBI too has raised its interventions in the exchange rate market as evident from its latest bulletin.

Mint New Delhi, 11th May 2017.

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