The real effective exchange rate (REER) of the rupee based on the consumer price index is estimated to have declined from 101.85 in April 2004 to 104.20 in March 2014 compared to a basket of 36 currencies, according to latest figures released by the Reserve Bank of India (RBI).
REER, based on the wholesale price index on the other hand, is estimated to have firmed up from 102.14 in April 2004 to 89.46 in March 2014, according to RBI.
For a 6-currency basket of major convertible currencies consumer price index-based REER declined from 102.11 in April 2004 to 111.37 in March 2014 while the WPI-based REER firmed up from 105.03 in April 2004 to 95.61 in March 2014.
RBI said it has computed the CPI-based REER by adjusting the base to 2004-05 as 100 for the back-casted series of new CPI data as provided in the Report of the Expert Committee to revise and strengthen the monetary policy framework released by the Reserve Bank in January 2014.
Henceforth, starting from the financial year 2014-15, only the CPI based REER would be compiled and released, RBI said.
Effective exchange rates are summary indicators of movements in the exchange rates of home currency against a basket of currencies of trade partner countries and are considered to be an indicator of international competitiveness.
Till now, in case of India, the RBI was providing the REER index (6 and 36 currencies) using the wholesale price index (WPI) for India and consumer price indices (CPI) for partner countries. However, with the availability of all India CPI index for India, the RBI has now decided to compute and provide data on REER using new CPI for India.