• Sticky inflation and negative real rates due to economic stress, and
yet strong capital inflows have created conditions for a strong INR
at a time of certain weakness in fundamentals
• Improved balance of payments has kept the INR steady against the
USD, pushing up the REER as a result. Appreciation would have
been greater if the RBI had not intervened vigorously
• Based on our currency valuation model, the INR is modestly
overvalued
• Ongoing structural reforms could help competitiveness metrics,
offsetting the risk stemming from an overvalued currency.