CURRENT AFFAIRS | 30 JULY 2026
Recent Reserve Bank of India data shows the Indian rupee is no longer overvalued on the Real Effective Exchange Rate (REER) measure. The REER, which had earlier signalled overvaluation, has drifted back toward its fair-value band of around 100 — a shift that can quietly help India’s exporters at a time when trade tensions are rising.
What exactly is the REER?
The Real Effective Exchange Rate is a single index number the RBI uses to judge whether the rupee is broadly “cheap” or “dear” against the currencies of India’s major trading partners. It is effective because it compares the rupee to a basket of currencies rather than just the US dollar, and real because it is adjusted for inflation differences between India and those partners.
- NEER (Nominal Effective Exchange Rate): the trade-weighted value of the rupee against the basket, without inflation adjustment.
- REER: NEER further adjusted for relative price levels (inflation). The RBI publishes both a 40-currency and a 6-currency basket.
Conceptual Framework
The REER is built on a base year set at an index value of 100. A reading above 100 means the rupee is overvalued relative to that base — Indian goods become comparatively expensive abroad, hurting export competitiveness. A reading moving toward or below 100 means the rupee is fairly valued or undervalued, aiding exporters. India runs a managed float: the market sets the rate, but the RBI intervenes to smooth sharp swings. Note the distinction between depreciation (a market-driven fall under a floating regime) and devaluation (a deliberate official cut of a fixed/pegged rate).
Why the shift matters now
An overvalued rupee makes exports dearer and imports cheaper, widening the trade gap. As the REER cools back toward 100, Indian textiles, engineering goods and gems & jewellery regain a slice of price competitiveness. This is especially timely given the escalation in US tariffs on Indian goods — a more competitive currency can partly offset the disadvantage a higher foreign tariff imposes on exporters.
The CLAT Angle — why it matters for the exam
Economy GK in CLAT frequently tests “index” concepts. The NEER vs REER distinction, the meaning of the base year = 100, and the depreciation vs devaluation pair are classic MCQ and passage hooks. This topic also pairs neatly with the tariff/trade theme, letting examiners build an integrated “currency-and-trade” comprehension passage.
Key Facts
| Index | Real Effective Exchange Rate (REER) |
| Compiled by | Reserve Bank of India |
| Baskets | 40-currency and 6-currency |
| Fair-value band | Around 100 (base year = 100) |
| Above 100 | Overvalued (exports dearer) |
| Regime | Managed float |
Memory Hook
“REER = Real (inflation-adjusted) + Effective (basket) — above 100 = overvalued.” Remember: NEER is Nominal (no inflation); add the “real” step and you get REER.
The bigger picture
Exchange-rate management is one of the RBI’s core mandates alongside inflation targeting. By watching the REER, policymakers gauge whether the rupee is helping or hurting the external sector, while forex reserves give the central bank the ammunition to intervene in a managed float. A rupee that is neither too strong nor too weak supports both export competitiveness and price stability — the balance the RBI constantly tries to strike.
Practice Quiz — 10 CLAT-Style Questions
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