Is the rupee overvalued or undervalued?
The only way to improve our understanding of currency valuation is to broaden existing models and incorporate the financial, social and political realities of our world and its societies
Afew weeks back, the vice-chairman of NITI Aayog, Rajiv Kumar, told reporters that the Indian rupee was overvalued by 5-7%. Since then, several experts have claimed that the rupee is overvalued by around 15%. At the same time, other reports claim that the rupee is actually undervalued by around 10%. Why is there such a stark difference of opinion regarding the valuation of India’s currency? More importantly, is the rupee undervalued or overvalued? To understand that, we need to delve deeper into a key variable in international economics: the real effective exchange rate (REER).