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Real Effective Exchange Rate (REER)
Context
The Real Effective Exchange Rate (REER) of the rupee increased to 108.14 in November from 107.20 in October, appreciating by 0.9 per cent.
About Real Effective Exchange Rate (REER)
- REER represents the inflation-adjusted, trade-weighted average value of a currency against its trading partners and it is often used as an indicator of external competitiveness.
- The real effective exchange rate (REER) is the weighted average of a country's currency in relation to an index or basket of other major currencies.
- The weights are determined by comparing the relative trade balance of a country's currency against that of each country in the index.
- An increase in a nation's REER is an indication that its exports are becoming more expensive and its imports are becoming cheaper, reducing its trade competitiveness.
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