 |
The Consumer Price Index (CPI)-Based Real Effective Exchange Rate Index (REER) is computed as a geometric weighted average of bilateral Rupee exchange rates vis-ŕ-vis key trading partners’ currencies, adjusted for relative inflation differentials using (in India’s case) the new CPI – Combined. |
|
An increase in the REER indicates a real appreciation of the Rupee while a decrease represents a real depreciation of the Rupee. |
|
Compared to the REER based on the Wholesale Price Index (WPI), which deflates India’s prices using WPI while deflating trading partners’ prices using CPI, the new CPI-based REER employs the CPI consistently to measure price levels at home and abroad. |
|
The CPI-based REER is available according to two weighting schemes: export-weighted and trade-weighted, where each version covers 6 and 36 partner countries. |
|
In order to fully capture the dynamics of India’s foreign trade, three-year moving averages of trade and export data are utilised to compute the weights used in the calculation of the index. |
|
Time-series data are available in monthly and annual frequencies, with historical data starting from April 2004, allowing analysts to examine the movements of the Rupee over a long time span. |
|
The CPI-based REER serves as a summary indicator of exchange rate performance and offers analysts a broad overview of India’s international competitiveness. |
| CDM Reference: |
| India Premium Database |
| + Interest and Foreign Exchange Rates |
| |
+ Exchange Rate |
| |
+ Table IN.MC007: Effective Exchange Rate
Index: Consumer Price Index Based
|
