Udaipur, December 26,2024 - The Reserve Bank of India (RBI) has said that a weak rupee benefits India's trade balance in the short term. However, in the long term, a stronger rupee is more helpful.  The RBI’s November bulletin highlights that the rupee is overvalued compared to other currencies. This assessment is based on the Real Effective Exchange Rate (REER), which measures the rupee’s value against a basket of global currencies.

What is Weak and Strong Rupee?

When the rupee is weak (its value is low compared to other currencies like the dollar), India's exports become cheaper for other countries, so they buy more from us. This helps the trade balance. Over time, a stronger rupee (higher value) is better for India's trade balance because it reduces the cost of imports and makes the economy stable.

Understanding Trade Balance

The trade balance is the difference between a country's exports and imports of goods and services. A weaker rupee makes exports cheaper and more competitive, improving the trade balance temporarily.

What is REER?

REER is like a report card for the rupee. It shows how the rupee’s value compares to other currencies. If the number goes up, it means the rupee is stronger than it should be compared to those currencies. RBI data showed that the rupee’s REER increased slightly in November. This happened because the rupee didn’t lose as much value as other currencies (like the euro, yen, or pound) when compared to the strong US dollar.

Why Did the Dollar Get Stronger?

After Donald Trump won the US election, the dollar became stronger against most major currencies, including the rupee. But since the rupee didn’t fall as much as others, its relative score (REER) went up.

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