Rupee still overvalued despite steep depreciation in the past few days
The November figure — the latest number officials disclosed by RBI – shows REER was 108.14. This means that the rupee is overvalued by 8.1 percent relative to its intrinsic value. Since December, the rupee has fallen about 2 percent.
“The depreciation in the INR would have reduced overvaluation on a REER basis. We estimate the index to be reduced to 106 to 107 levels currently vs 108.1 levels in November.” said Gaura Sengupta, chief economist at IDFC First Bank. “The rupee still remains overvalued on a REER basis as other currencies have weakened further against the dollar in December and January.”
Since November 5th, when the US elected Donald Trump as its next president, 26 global currencies depreciated about 2.5% on an average according to Anindya Banerjee, head of markets at Kotak Securities.
“The rupee became weaker by about 2.3 per cent weaker in the same period and therefore it is still overvalued in terms of REER” he said.
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