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RBI Governor calls rupee undervalued, not overvalued
The Hindu··29 Jul
Reserve Bank of India Governor Sanjay Malhotra reiterated that the rupee is undervalued in both nominal and real effective exchange rate terms, adding that the central bank does not target a specific exchange rate or band. The rupee has depreciated 5.8 percent this year amid elevated crude prices, geopolitical tensions and outflows of foreign portfolio investment from emerging markets.
Prism
What It Means For You
- Anyone with loans, savings or investments tied to the rupee gets insight into whether the central bank sees the currency's recent weakness as temporary.
- Importers and travellers spending in dollars can note that a weaker rupee raises costs, while exporters may benefit from improved competitiveness.
- Investors tracking markets get context for why the rupee's moves are being read against economic fundamentals rather than short term sentiment alone.
What's Happening
- RBI Governor Sanjay Malhotra reiterated that the rupee is undervalued in both nominal and real effective exchange rate, or REER, terms.
- He said the RBI does not target any specific exchange rate or band, and its market interventions aim only to curb excessive volatility.
- The rupee has depreciated 5.8 percent so far this year amid elevated crude prices, geopolitical tensions and foreign portfolio outflows.
What REER Reveals That The Dollar Rate Does Not
- REER compares the rupee with the currencies of India's major trading partners after adjusting for inflation, offering a broader competitiveness gauge.
- India continues growing faster than 6 percent a year, with reserves sufficient to cover 11 months of imports despite the currency's weakness.
- Economists say a weaker rupee helps exporters earn more domestically, while a stronger rupee eases import costs and inflationary pressure.
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