Beyond headline number: Rupee's fall is 'real' this time, Pg17

Key Highlights:

• The rupee breached the 89-to-the-dollar mark, closing at 89.46 on November 2025.
• Between November 21 and November 28, 2025, the rupee weakened against the dollar, euro, British pound, and Japanese yen.
• Since November 28, 2024, the rupee has depreciated against all four major currencies.
• The IMF reclassified India’s exchange rate regime as a “crawl-like arrangement” on November 26.
• RBI Governor Sanjay Malhotra, who assumed office on December 11, 2024, has adopted a more flexible exchange policy.

Detailed Insights:

• The Nominal Effective Exchange Rate (NEER) and Real Effective Exchange Rate (REER) indices provide a better understanding of the rupee’s weakening over the past year.
• The NEER index has been below 100 since 2018-19, indicating that the rupee has fallen relative to the currencies of India’s main trading partners by 10% since 2015-16.
• From a peak of 108.06 in November 2024, the REER index has plunged by 9.8% to 97.47 in October 2025, suggesting that the rupee is currently undervalued.
• India's lower CPI inflation rate compared to other major economies, combined with nominal depreciation, has contributed to the rupee's undervalued status.
• The RBI's shift towards a more flexible exchange policy is influenced by easing domestic inflation and the need to maintain India’s trade competitiveness.

Key Concepts Involved:

• Nominal Effective Exchange Rate (NEER): Index of the weighted average of a currency's exchange rates vis-à-vis the currencies of a country's key trading partners.
• Real Effective Exchange Rate (REER): The NEER index adjusted for inflation differentials between the home country and its trading partners.
• Crawl-like Arrangement: An exchange rate regime that is neither fully floating nor pegged at near-fixed levels relative to other currencies.