The rupee remains overvalued against the currencies of India's trading partners, even as it hit record lows against the dollar in August and September.
According to the Reserve Bank of India's (RBI) real effective exchange rate (REER) index, the rupee stood at 5.5 per cent above its fair value in August, down from 7.7 per cent in July. This slight easing followed fears of a US recession and the unwinding of yen carry trades, which exerted pressure on the Indian currency.
On September 5, the rupee hit a new low of 83.99 against the dollar, as investors pulled out of yen- and yuan-funded carry trades in favour of the greenback. However, the RBI's intervention, selling US dollars in the forex market, prevented the rupee from breaching the critical 84 per dollar mark.
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