Neer and reer UPSC/Reer and neer UPSC
Question: We received this doubt from a student. (It is an important topic for the exam, so we are giving detailed guidance on the topic) This image was sent by a student. He said he did not understand what’s written in the paper and has asked for an explanation of the same. Category: Economy Topic: Exchange rates Explanation:
- Nominal Effective Exchange Rate (NEER) is the weighted average of bilateral nominal exchange rates of the rupee in terms of foreign currencies. It is simple and direct for example:- one US Dollar as per NEER will be say 66 rupees.
- Where asReal Effective Exchange Rate (REER)is the weighted average of nominal exchange rates, adjusted for inflation.
- The indices of Nominal Effective Exchange Rate (NEER) and Real Effective Exchange Rate (REER) are used as indicators of external competitiveness by RBI.
In the above article, it is discussed that when the inflation is more, it may impact competitiveness as can been seen from REER indices and hence one suggestion could be to depreciate rupee whenever there is high inflation.