The real effective exchange rate (REER) of the rupee has remained around the benchmark (base year value of 100) for most part of the last 15 years, reflecting India’s better external competitiveness, a Reserve Bank of India study said. Inflation differentials between India and its major trading partners have declined and stabilised since the adoption of flexible inflation targeting (FIT) framework, boding well for India’s external competitiveness, the RBI paper said. In the case of India, the relative importance of trading partners has shifted mainly towards emerging markets and developing economies (EMDEs) since 2004-05. This implies that the inflation differentials between India and its trading partners were less of a concern for former’s external competitiveness under FIT regime, the paper said. An EER is a summary indicator of movements of the home currency against a basket of currencies of trading partners.
Source: Indian Express January 23, 2021 23:01 UTC