RBI REER improves to 91.26 in June, against multi-year lows in May

India's real effective exchange rate, or REER, for the rupee rose to 91.26 in June from 89.08 in May, recovering from its lowest level in over a decade, according to the Reserve Bank of India's latest monthly bulletin data on the 40-currency trade-weighted basket.

The improvement comes as the central bank and the government implemented tax measures and policies to attract the foreign inflows during RBI’s bi-monthly meeting at the start of the month.

The increase in REER indicates an improvement in the rupee's inflation-adjusted value against a basket of major trading partners' currencies, reflecting a partial reversal of the weakness seen in May.

The nominal effective exchange rate, or NEER, also strengthened to 78.21 in June from 77.19 in May, suggesting an improvement in the rupee's trade-weighted value during the month.

The rebound comes as the rupee recovered from the sharp weakness witnessed in May, supported by easing global risk aversion, moderation in crude oil prices following the de-escalation of geopolitical tensions in West Asia, and improved foreign capital inflows. Expectations surrounding India's inclusion in the Bloomberg Global Aggregate Index also supported sentiment towards domestic assets.

A higher REER generally points to some loss in export competitiveness as domestic goods become relatively more expensive relative to those of trading partners. However, it can also reflect stronger macroeconomic fundamentals, improved capital inflows and greater currency stability.

The latest readings suggest the rupee recovered part of the trade-weighted weakness seen in May, although its effective value continues to be shaped by movements in capital flows, global risk sentiment and crude oil prices.