Interviews
Stronger rupee Vs weaker exports
21 Jun '07
9 min read
Subject to this predominant objective, the exchange rate policy is guided by the need to reduce excess volatility, prevent the emergence of destabilising speculative activities, help maintain adequate level of reserves, and develop an orderly foreign exchange market.
The Indian market, like other developing countries markets, is not yet very deep and broad, and can sometimes be characterised by uneven flow of demand and supply over different periods. In this situation, the Reserve Bank of India has been prepared to make sales and purchases of foreign currency in order to even out lumpy demand and supply in the relatively thin forex market and to smoothen jerky movements.
The Committee on Fuller Capital Account Convertibility (CFCAC) chaired by Mr.S.S.Tarapore, former Deputy Governor, RBI had recommended that exchange rate should be managed around Real Effective Exchange Rate (REER), which is the weighted average of Nominal Effective Exchange Rate (NEER) adjusted by the ratio of domestic price to foreign price. NEER is the weighted average of the bilateral nominal exchange rates of the home currency in terms of foreign currencies rate which is an index of a basket of currencies of our major trading partners.
The RBI from time to time revises the basis of the index keeping in view significant shifts in India's trade towards developing and emerging economies and other major trade partners. REER can be a valuable input in formulating theexchange rate policy. The Committee has also made recommendations for development of financial markets, including the foreign exchange market.
The Indian market, like other developing countries markets, is not yet very deep and broad, and can sometimes be characterised by uneven flow of demand and supply over different periods. In this situation, the Reserve Bank of India has been prepared to make sales and purchases of foreign currency in order to even out lumpy demand and supply in the relatively thin forex market and to smoothen jerky movements.
The Committee on Fuller Capital Account Convertibility (CFCAC) chaired by Mr.S.S.Tarapore, former Deputy Governor, RBI had recommended that exchange rate should be managed around Real Effective Exchange Rate (REER), which is the weighted average of Nominal Effective Exchange Rate (NEER) adjusted by the ratio of domestic price to foreign price. NEER is the weighted average of the bilateral nominal exchange rates of the home currency in terms of foreign currencies rate which is an index of a basket of currencies of our major trading partners.
The RBI from time to time revises the basis of the index keeping in view significant shifts in India's trade towards developing and emerging economies and other major trade partners. REER can be a valuable input in formulating theexchange rate policy. The Committee has also made recommendations for development of financial markets, including the foreign exchange market.
Popular News
Leave your Comments
Editor’s Pick
Esteemed Clients
-Ltd..jpg?tr=w-120,h-60,c-at_max,cm-pad_resize,bg-ffffff "Thermore (Far East) Ltd.")
.jpg?tr=w-120,h-60,c-at_max,cm-pad_resize,bg-ffffff "Telangana State Industrial Infrastructure Corporation Limited (TSllC Ltd)")
.jpg?tr=w-120,h-60,c-at_max,cm-pad_resize,bg-ffffff "Taiwan Textile Federation (TTF)")
