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India inflation fall not factored in rupee real rate

Current market estimates of the rupee's overvaluation against its real effective exchange rate may not have factored recent falls in the country's inflation rate, a central bank official said on Tuesday.

The REER is a trade-weighted and inflation-adjusted index that gives the rupee's level compared with five of its major trading partners.

"The Reserve Bank of India has emphasised even in the past that the REER could best be suited for a study of the currency over a period of time rather than the exchange rate level at any particular point in time," the official said, when asked about the rupee's REER.

"The level of REER perceived by the market right now does not seem to be reflecting the fall in India's inflation level by about two per cent in the last fortnight of March 2001," the official said.

India's year-on-year inflation rate, measured by the wholesale price index, has fallen to 4.87 per cent in the week ended March 31 from 6.5 per cent in the week ended March 17.

Currency analysts have said that the rupee's over one per cent fall since last Tuesday, triggered by a foreign fund's dollar purchases last week, was an adjustment for its overvaluation on a trade-weighted basis following the slide in Asian currencies in past months.

The rupee was quoted at 47.01/03 per dollar at 10:50 a.m. It steadied after falling to a record low of 47.10 in early deals.

The rupee had ended Monday at a record low of 47.00/02.

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