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The nominal appreciation was strong enough to outweigh the impact of unfavorable price differences, according to a report called ‘Real Effective Exchange Rate and its Implications for India’s Trade Balance’ authored by Reserve Bank of India staffers.
The article does not represent the views of the RBI, but that of the authors.
REER represents the inflation-adjusted, trade-weighted average value of a currency against its trading partners and it is often used as an indicator of external competitiveness.
Despite heightened global uncertainties, the rupee exhibited the lowest volatility among major currencies.
For India, changes in REER have an uneven impact on trade balance. A depreciation improves the trade balance in the short term, while appreciation has a larger impact in the long term, the report said.