BS Number Wise: RBI needs to strike the right balance as rupee falls

As the discussion shifts from internal to external factors, is the RBI being too conservative and could the rupee depreciate more?

The question about the rupee has not changed in the last one year. Now, the discussion has shifted from internal to external factors. The rupee touched a new low against the dollar this week, falling to Rs 78.17. As the Reserve Bank of India (RBI) intervenes in the markets to prevent a free fall — evident from a declining forex chest — the question is whether it is being too conservative in its approach and if the rupee could depreciate more.

To measure how overvalued or undervalued the rupee is, one primary tool is the real effective exchange rate. REER