Rupee still overvalued despite steep depreciation in the past few days

1 month ago 16

Synopsis

The Indian rupee continues to suffer value. Yet, economists judge it is inactive overvalued based connected the existent effectual speech complaint (REER). Since November, the rupee has fallen astir 2 percent. Experts expect the rupee to enactment nether unit until clarity connected Donald Trump's argumentation decisions. Inflation trends volition besides impact the rupee's valuation.

Rupee inactive overvalued contempt steep depreciation successful the past fewer days

Despite the continuous depreciation of the rupee, economists accidental that the section currency is inactive overvalued successful presumption of an ostentation adjusted (with its trading partners) scale -- existent effectual speech complaint oregon REER -- raising anticipation that it whitethorn spell down further.

The November fig - the latest fig officials disclosed by RBI – shows REER was 108.14. This means that the rupee is overvalued by 8.1 percent comparative to its intrinsic value. Since December, the rupee has fallen astir 2 percent.

“The depreciation successful the INR would person reduced overvaluation connected a REER basis. We estimation the scale to beryllium reduced to 106 to 107 levels presently vs 108.1 levels successful November.” said Gaura Sengupta, main economist astatine IDFC First Bank. “The rupee inactive remains overvalued connected a REER ground arsenic different currencies person weakened further against the dollar successful December and January.”

Since November 5th, erstwhile the US elected Donald Trump arsenic its adjacent president, 26 planetary currencies depreciated astir 2.5% connected an mean according to Anindya Banerjee, caput of markets astatine Kotak Securities.

“The rupee became weaker by astir 2.3 per cent weaker successful the aforesaid play and truthful it is inactive overvalued successful presumption of REER” helium said.

The RBI’s authoritative stance is that it does not look astatine immoderate peculiar level of rupee portion it intervenes lone to guarantee stableness and orderly question successful the currency and restrict utmost volatility. Market participants nevertheless judge that the cardinal slope does not similar to spot the currency does not breach the fashionable benchmarks similar REER and guarantee that it is successful alignment of these indices.

There volition beryllium sizeable uncertainties from Trump’s policies. "The rupee volition stay nether unit till determination is simply a reversal successful the dollar index. The concern volition beryllium clearer erstwhile Trump ...