Rupee Undervalued?

This query is : Resolved

kartik_somu (Querist)

19 February 2008 What is Rupee Undervalued?
If dollar value was Rs. 40 and if it is set to Rs.44, will it be called undervalued or

if it is set to Rs. 38, it will be called so?

CA. Dashrath Maheshwari

CA. Dashrath Maheshwari (Expert)

19 February 2008 both are incorrect, The PPP+ model takes into account both relative inflation and relative productivity growth for computation of
overvaluation/undervaluation of a currency.

CA. Dashrath Maheshwari

CA. Dashrath Maheshwari (Expert)

19 February 2008 Japan as a country that had achieved fast growth rates directly attributed to an under-valued currency

CA. Dashrath Maheshwari

CA. Dashrath Maheshwari (Expert)

19 February 2008 Rupee Undervaluation can only be done by the central bank (RBI) to achieve gain in GDP.
where the rate is not market driven its possible.

CA. Dashrath Maheshwari

CA. Dashrath Maheshwari (Expert)

19 February 2008 Regardless of the size, if the costs of rupee intervention are present, and there are no benefits, then one should let the rupee appreciate. The presumed benefits of an "undervalued" rupee are higher growth of exports, possibly higher employment, and possibly higher GDP growth.

CA. Dashrath Maheshwari

CA. Dashrath Maheshwari (Expert)

19 February 2008 The level of reserve in yr 2000 was $41 bn for India and $172 bn for China. One can change the particular estimates, and lower the impact of exchange rate depreciation, but the net result is still the same - keeping the exchange rate undervalued provides huge benefits to the economy, benefits that are more than six times the cost for India, and more than 11 times the cost for China.

These numbers provide some explanation for the "miracle" of east Asian, and especially, Chinese growth. It is apparent that the elephant has a lot to learn from the tiger.

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