Rupee plunge calls for action from govt as currency overvaluation easing

The RBI net sold $1.9 billion of foreign currency in July to support the rupee

As the Indian rupee plumbs new depths, the currency’s overvaluation relative to the nation’s trading partners has been used as a justification for the relative inaction from policymakers.

There’s evidence now to show this argument is weakening. The nation’s 36-currency real effective exchange rate, or REER, was 114.54 in August, a two-year low, and down from 115.32 in July, according to data released Tuesday.

There are dangers in using the overvaluation argument to not support the rupee when it is hitting multiple lows, said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. in Singapore.

“Observable rupee shifts have far more