Despite the continued depreciation of the rupee, economists say the local currency is still in line with the inflation index (along with its trading partners) – the real effective exchange rate or REER – raising expectations that it will fall further.

The November figure – the latest number released by RBI officials – showed that the REER was 108.14. This means that the rupee is overvalued by 8.1 percent relative to its intrinsic value. The rupee has depreciated by around 2 percent since December.

“Devaluation in INR would have reduced overvaluation on REER basis. We forecast the index to decline to 106 to 107 levels at present against 108.1 levels in November.” Gaura Sengupta, Chief Economist, IDFC First Bank said. “The rupee is still overvalued on a RER basis as other currencies weakened further against the dollar in December and January.”

Since November 5, when the US elected Donald Trump as its next president, 26 global currencies have depreciated by an average of 2.5%, according to Anindya Banerjee, head of markets at Kotak Securities.

“The rupee depreciated by around 2.3 per cent over the same period and is therefore still overvalued in terms of REER,” he said.

growfast

  • A Masterclass on Value Investing and Company Valuation

    Stock trading

    A Masterclass on Value Investing and Company Valuation

  • Market 104: Options Trading: Kickstart Your F&O Venture

    Stock trading

    Market 104: Options Trading: Kickstart Your F&O Adventure

    By – Saketh R, Founder- QuickAlpha, Full Time Options Trader

  • Technical Analysis for Everyone - Technical Analysis Course

    Stock trading

    Technical Analysis For Everyone – Technical Analysis Course

    By – Abhijit Paul, Head of Technical Research, Fund Manager- ICICI Securities

  • Stock markets made easy

    Stock trading

    Stock markets made easy

    By – elearnmarkets, Financial Education by StockEdge

  • Renko chart patterns made easy

    Stock trading

    Renko chart patterns made easy

    By – Kaushik Akiwatkar, Derivatives Trader and Investor

  • Market 101: Insights into Trendlines and Momentum

    Stock trading

    Market 101: Insights into Trendlines and Momentum

    By – Rohit Srivastava, Founder- Indianarts.com

  • Markets 102: Mastering Sentiment Indicators for Swing and Positional Trading

    Stock trading

    Markets 102: Mastering Sentiment Indicators for Swing and Positional Trading

    By – Rohit Srivastava, Founder- Indianarts.com

  • Dow theory simplified

    Stock trading

    Dow theory simplified

    By – Vishal Mehta, Independent Systematic Trader

  • Market 103: Mastering Trends with RMI and Techno-Funda Insights

    Stock trading

    Market 103: Mastering Trends with RMI and Techno-Funda Insights

    By – Rohit Srivastava, Founder- Indianarts.com

  • ROC Made Easy: A Master Course for the ROC Stock Indicator

    Stock trading

    ROC Made Easy: A Master Course for the ROC Stock Indicator

    By – Saurdeep Dey, Equity and Commodity Trader, Trainer

  • Hackin Ashi Trading Tricks: Master the Art of Trading

    Stock trading

    Hackin Ashi Trading Tricks: Master the Art of Trading

    By – Dinesh Nagpal, Full Time Trader, Ichimoku and Trading Psychology Expert

  • RSI Made Easy: RSI Trading Course

    Stock trading

    RSI Made Easy: RSI Trading Course

    By – Saurdeep Dey, Equity and Commodity Trader, Trainer

  • Introduction to Technical Analysis and Candlestick Theory

    Stock trading

    Introduction to Technical Analysis and Candlestick Theory

    By – Dinesh Nagpal, Full Time Trader, Ichimoku and Trading Psychology Expert

    The RBI’s official stance is that it does not see any particular level of the rupee while it only intervenes to ensure stability and orderly movements in the currency and to prohibit extreme volatility. However, market participants believe that the central bank does not like to see the currency breach popular benchmarks like REER and ensure that it is in alignment with these indicators.

    There will be significant uncertainties from Trump’s policies. Banerjee said, “Until there is a reversal in the dollar index, the rupee will remain under pressure. The situation will become clearer when Trump starts taking his policy decisions.”

    Besides, a lot will also depend on how inflation plays out at home and in trading partners. The New York Fed’s Survey of Consumer Expectations reported that consumers expected inflation to rise over potential tariffs during Trump’s second term. “Another factor is the reduction in the inflation gap between India and our trading partners which will reduce the overvaluation to some extent,” Sengupta said.

    (Disclaimer: Recommendations, suggestions, opinions and views given by experts are their own. These do not represent the views of Economic Times)

    (You can now subscribe to our ETMarkets WhatsApp channel)

    LEAVE A REPLY

    Please enter your comment!
    Please enter your name here