Depreciation of rupees helps exports more than an appreciating currency helping in imports: RBI study
exchange rate movements shows that the benefits of depreciation of the Rupee, adjusted for inflation, is more in the form of exports than an appreciation that appears to be better for importers, an RBI study shows. The metric is known as the Real Effective Exchange Rate, (REER).
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“ The empirical findings indicate that in India depreciation in REER improves trade balance while appreciation deteriorates it” the study titled “Real Effective Exchange Rate and its Implications for India’s Trade Balance” said. The study was published in the Reserve Bank’s latest monthly bulletin.
“ The impact of REER depreciation on trade balance is more than an equivalent REER appreciation in the short-run and vice versa in the long-run”. The views are of the authors Dipak R. Chaudhari, Anshul and Sangeeta Das from the financial markets operations department, Srijashree Sardar from financial stability department and Priyanka Priyadarshini from the department of supervision and not necessarily of the central bank.
The trade-weighted REER assumes that the use of a country’s currency in world trade is closely tied to its share in world trade. In other words, depreciation of a country’s currency vis-à-vis all the trade partners increases the price of imports in domestic currency, making imports
