Rupee's real effective exchange rate jumps to record 108.14 in Nov
This story was originally published at 19:05 IST on 24 December 2024
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--RBI: Rupee effective FX rate index 108.14 in Nov vs 107.20 in Oct
--CONTEXT: Real FX rate index for trade-weighted, 40-currency basket
NEW DELHI – The rupee's real effective exchange rate against a basket of 40 currencies, in terms of trade-based weights, rose to a record 108.14 in November from 107.20 in October, according to data released by the Reserve Bank of India on Tuesday. The November REER, the highest in over 20 years for which data is available, indicates that the Indian currency is overvalued by around 8%.
The Indian currency fell 0.5% against the dollar last month due to strength in the dollar index, a weakening Chinese yuan and foreign portfolio outflows from domestic markets. FPIs withdrew almost $2.3 billion on a net basis from India in November.
The dollar index, which measures the strength of the dollar against six major currencies, rose almost 2% last month amid uncertainty over the Federal Reserve's rate cut cycle. On the other hand, the yuan weakened 1.8% against the dollar in November, driven by fears of an intensifying US-China trade dispute after Donald Trump won the US presidential elections.
Even though the rupee declined against the US dollar in November, its real effective exchange rate rose as other currencies fell comparatively sharply against the greenback. The RBI actively intervened in November through dollar sales, both in the offshore non-deliverable forwards and the domestic spot market, to prevent a sharp depreciation in the Indian currency, according to dealers.
"Despite heightened global uncertainties, the INR (Indian rupee) exhibited the lowest volatility among major currencies (in November). In terms of the 40-currency real effective exchange rate, the INR appreciated by 0.9% (month-on-month) in November 2024 as appreciation of the INR in nominal effective terms more than offset negative relative price differentials," according to a paper by central bank staff on the State of the Economy in the RBI monthly bulletin.
The 40-currency basket includes the currencies of Angola, Australia, Bangladesh, Brazil, Canada, Chile, China, Egypt, the European Union, Ghana, Hong Kong, Indonesia, Iran, Iraq, Israel, Japan, Kenya, Kuwait, Malaysia, Mexico, Nepal, Nigeria, Oman, Qatar, Russia, South Korea, Saudi Arabia, Singapore, South Africa, Sri Lanka, Switzerland, Taiwan, Tanzania, Thailand, Turkey, Ukraine, the United Arab Emirates, the UK, the US, and Vietnam.
End
US$1 = INR 85.20
Reported by Pratiksha
Edited by Saji George Titus
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