Kolkata: The rupee may need to depreciate further to adjust to the sustained terms of trade shocks even as the trade-weighted real effective exchange rate (REER) index fell to 91.75, a level last seen during the 2013 taper tantrum, Axis Bank said in a research report.
The rupee has weakened nearly 6% this year.
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"As of March, depreciation to a new fair value had likely been completed - though a sustained terms of trade shock and a loss of 5% in relative AI productivity theoretically translate to another 10% weakening of the REER in a year's time," said Tanay Dalal, economist at the private sector lender.
The REER has weakened to 91.8 in July this year from a tad lower of 102 in April 2025.
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Dalal said subsequent terms of trade and productivity shifts could drive further fair value weakening ahead. "Part of the problem might be misalignment of neutral rates required for the domestic growth and inflation balance with global trends," he said.
The Reserve Bank of India is estimated to have sold $250 billion since mid-2023 to defend the local currency, nearly double of the inflows seen through the dedicated dollar-inflows programme run between June and August, according to Dalal.
