Latest Reer Pegs Rupee At 42.71

The value of the rupee should be around 42.71 to the dollar, going by the latest official Reer figures.

The Reserve Bank of India has begun releasing a modified series on Reer and Neer in its monthly Bulletin. The latest issue for July 1998 gives data on these indicators on three different bases: 1991-92, 1993-94 and 1996-97. The figures are based on 5-country trade based weights. The countries covered are USA, Germany, Japan, United Kingdom and France.

The three different series indicate depreciation of the rupee to the extent of 15.42 per cent over the 1991-92 base, 1.48 per cent over the 1993-94 base and 4.51 per cent over the 1996-97 base.

For data on exchange rates, the daily morning eastern market exchange rates of these currencies are crossed with the RBI reference rate announced every day at noon. The weekly all commodity wholesale price index (WPI) is used as an index of inflation for India in these calculations.

The WPI data are available with a gap of 7 weeks and are updated every week. For G-5 countries, the RBI takes into account the consumer price indices in the respective countries.

The weights for the indices are constructed on the basis of geographic average of India's bilateral total trade with G-5 countries during the five year period from 1992-93 to 1996-97 (financial year). The average share of G-5 countries in India's total trade was 37 per cent during these five years.

The average bilateral trade with each of these countries during these five years is used for the purpose of assigning weights. The share of each country's average total trade to India's average total trade is then normalised to arrive at the weights.

The new series are in addition to the 36-country based indices published by the RBI in the Bulletin. The base years 1991-92 and 1993-94 will remain fixed for several years while the base year 1996-97 will be a moving one, changing the base and bringing it forward every year.

"There is a high degree of correlation between the 5-country indices of Neer and Reer and 36-country trade based indices," points out the RBI Bulletin.