Over January 1996, the appreciation in April 1997 was 10.3 per cent. There is considerable discussion as to whether the rupee is overvalued or not. As per the REER, it would certainly appear so, irrespective of the base chosen. The overvaluation has got exacerbated with the sharp appreciation of the US dollar against other major currencies, viz., the DM and the Yen.
This scenario is based on the expectation that global economic activity will remain robust, with the moderation of economic growth in the United States largely offset by the continued strength of emerging market economies. Given the financial market volatility and the reappraisal of risks in recent weeks, this assessment remains surrounded by heightened uncertainty.